[NFS]

Originally Posted by beauforty

There's a lot of numbers in this post...

I am trying to find someone who can explain interest rates so that my small brain can understand it.

[gIzzE]

Originally Posted by needforspeed

What I have learned from you is that there are also options for 'balanced payments' where the interest is NOT calculated monthly, but instead is spread evenly throughout the term of the loan.

That is completely wrong.

You have got it all arse about tit!!

http://www.moneysavingexpert.com/loa...te-loan-danger

[Art Man]

Originally Posted by AlanQS

My bank has done a beezer. By law in a personal loan they have to show at least three early re-payment balances. They also have to state the total amount of the loan including the interest. On a five year loan they show early repayments at 15 months, 30 months, and 45 months.
At 15 months they take about 60% of the full amount of interest. At half way, 30 months, only 12% of the total interest is refunded and at 45 months - which is one and a quarter years early, not only do they keep all of the interest, they charge you £200 more. WTF! They need their masks that's for sure.

This sounds like a regulated loan, so the figures quoted are calculated by a formula defined in the Consumer Credit Act. You would have got the same results no matter where you went - assuming th same APR.

[gIzzE]

That is why a balanced lease payments scheme is better for someone who may not want to stay in the agreement for the whole term.
Better to pay interest on a monthly basis and have it added to the amount remaining, you always know where you are then, it is in front of you in black and white.

[Art Man]

Originally Posted by needforspeed

I don't think this is quite correct. BMW quote flat rates and APR's for loans where interest is calculated monthly as do Lombard.

They are just expressions of the same thing calculated with different rules.

Assume you borrow £1000 over 12 months at a Flat Rate of 5%.

All this means is that, on average, you pay (1000*0.05)/12 interest per month, which equates to £50 over the full year.

The APR for this loan (assuming there are no charges) is about 9.2%

Using the rule of 78 approximation for monthly interest calculations the interest charges would be split like this:

Month	%'age int	Monthly 
		Interest 
1	15.38%	£7.69
2	14.10%	£7.05
3	12.82%	£6.41
4	11.54%	£5.77
5	10.26%	£5.13
6	8.97%	£4.49
7	7.69%	£3.85
8	6.41%	£3.21
9	5.13%	£2.56
10	3.85%	£1.92
11	2.56%	£1.28
12	1.28%	£0.64

78	100.00%	£50.00

The interest is still £50. The flat rate of interest is still 5% and the APR is still 9.2%

That’s pretty much spot on, flat rate is an average. Think of the APR being the interest rate the finance companies are use to monitor their return on loans i.e. an even return over the course of the agreement.

What I have learned from you is that there are also options for 'balanced payments' where the interest is NOT calculated monthly, but instead is spread evenly throughout the term of the loan.

In this case you would pay £4.17 per month, so the flat rate is a particularly easy way to understand the interest costs of this sort of loan.

Balanced payments sounds like a great option if you don't want to see the loan through. I'm going to look into it further. However, my point is that a loan quoted with a 'flat rate' does not necessarily have balanced payments.

Not quite. As mentioned before, think of it as a repayment mortgage, which you getting a statement for, every month. It will start with the opening balance, add the interest for the month, less a repayment (calculated to pay the loan off within the remaining term of the loan). The next month would start with the closing balance from the prior month, an interest amount, which is slightly lss than the prior month, less the same repayment as in the prior month. So using your figures, the 1st month would be £1,000 + £7.69 - £87.50, resulting in a closing balance of £920.19. The 2nd month would be £920.19 + £7.05 - £87.50, closing balance £839.74. So the monthly interest rate is reducing every month, but the repayments stay the same.
The big difference is the loan is variable, so any changes in the bank interest rate can be reflected within the loan. If we continue to use your Rule of 78 example, but increase the rate to 6% in the 2nd period, the statement would be £920.19 + £9.20 (£920.19 x 6% x 11/66[remember there is only 11 months, so the sum is 66,not 78]) - £88.67, leaving a closing balance of £840.72. The new repayment figure reflects the increased interest rate and that there is only 11 months left on the agreement.

[Art Man]

Originally Posted by gIzzE

That is why a balanced lease payments scheme is better for someone who may not want to stay in the agreement for the whole term.
Better to pay interest on a monthly basis and have it added to the amount remaining, you always know where you are then, it is in front of you in black and white.

True, it is nice to get a statement every month, but if you are on a regulated agreement you can aways hit the finance company for a settlement figure every month and they have to reply within 7 days. But once you understand the mechanics, you can do the sums on a spreadsheet or even use the "Rule of 78" as it isn't a million miles away from the correct figure.

[Art Man]

Originally Posted by gIzzE

BMW Select - renting with an option to buy at the end, or use the equity to put towards a new car. Front loaded with a discount for ending early, a few people have been burnt using this when wanting out early as the discount was not what they thought it would be.

When you mean discount for early settlement, do you mean when you get a statement saying balance outstanding X, less rebate (or discount) Y, total amount due Z? Because if so, it's con! And I know because that what I use to do when I was in this game! It's a marketing trick, as hidden in the total amount is a penalty charge I'm stuffing you with, but becauase I have include te words rebate or discount and everything looks right, you think I'm a really nice guy to give some money back!

[NFS]

Originally Posted by Art Man

That’s pretty much spot on, flat rate is an average. Think of the APR being the interest rate the finance companies are use to monitor their return on loans i.e. an even return over the course of the agreement.

Thanks for that It helps to know that my understanding is OK.

I've actually written a simple spreadsheet now, which calculates the settlement value for my loan for every month based on the 'rule of 78'. I've added a column which provides a true monthly cost:
(Settlement Figure + Amount Paid to Date - income from resale)/no of months

I think I have finally cracked the balanced payments concept as well .. and it does look as if you are correct in that it just works like a repayment mortgage:

http://www.vcwestmidlands.co.uk/News...07%20.html

[Art Man]

Originally Posted by needforspeed

Thanks for that It helps to know that my understanding is OK.

I've actually written a simple spreadsheet now, which calculates the settlement value for my loan for every month based on the 'rule of 78'. I've added a column which provides a true monthly cost:
(Settlement Figure + Amount Paid to Date - income from resale)/no of months

I think I have finally cracked the balanced payments concept as well .. and it does look as if you are correct in that it just works like a repayment mortgage:

http://www.vcwestmidlands.co.uk/News...r_2007%20.html

I had to say I miss-understood how the balance payment worked. I thought the repayments adjusted as the interest rates changed, but from this, it states the repayment stays the same, but at the end of the contract there is a balancing charge to account for the additional interest. I wonder if you pay interest on the additional interest? It certainly wasn't around when I was in the business.

[NFS]

Originally Posted by Art Man

I had to say I miss-understood how the balance payment worked. I thought the repayments adjusted as the interest rates changed, but from this, it states the repayment stays the same, but at the end of the contract there is a balancing charge to account for the additional interest. I wonder if you pay interest on the additional interest? It certainly wasn't around when I was in the business.

I just ran the numbers for a 'typical' loan for 'rule of 78' and 'balanced payments'.

There is a difference in the cumulative interest you would be charged at a given time, but it is less significant than I thought it might be. Some of this difference is presumably also down to the fact that 'rule of 78' overstates the interest.

[Art Man]

Originally Posted by needforspeed

I just ran the numbers for a 'typical' loan for 'rule of 78' and 'balanced payments'.

There is a difference in the cumulative interest you would be charged at a given time, but it is less significant than I thought it might be. Some of this difference is presumably also down to the fact that 'rule of 78' overstates the interest.

When you use rule of 78, don't include any setup/admin fees that are paid with the first payment, but do include any purchasing fees etc made with the last payment.

[tisme]

If anyone wants, I'll provide a link to a spreadsheet that you can download and put in the loan you get for the car and the payments you make back so you can determine the APR. The spreadsheet works on the basis that interest is calculated and compounded monthly.

[NFS]

Originally Posted by tisme

If anyone wants, I'll provide a link to a spreadsheet that you can download and put in the loan you get for the car and the payments you make back so you can determine the APR. The spreadsheet works on the basis that interest is calculated and compounded monthly.

This would be really useful for a lot of people, since BMW Finance (and others) are often a little shy about stating the APR.

[gIzzE]

I think they tend to be shy about quoting APR as they can only quote an equivalent as most of their agreements are flat rate, which they have to state, but only of you ask.

[tisme]

Originally Posted by needforspeed

This would be really useful for a lot of people, since BMW Finance (and others) are often a little shy about stating the APR.

Let me tidy it up and upload it over the next few days.

[tisme]

Here is my link for finance comparisons. It calculates the APR and you can insert penalties and early repayments etc. The lowest APR wins and it is what I will use when I compare finances in a few months time.

It is not particularly tidy, but it works.

www.redoak.co.uk/BMWFinance.xls

[NFS]

Originally Posted by tisme

Here is my link for finance comparisons. It calculates the APR and you can insert penalties and early repayments etc. The lowest APR wins and it is what I will use when I compare finances in a few months time.

It is not particularly tidy, but it works.

www.redoak.co.uk/BMWFinance.xls

Spot on

Works really well. I actually wanted to make sure that my dealer had really given me the APR that we discussed.

He agreed to match a quote I had from Lombard, but I didn't notice until recently that the finance agreement doesn't state any interest rate (flat or APR).

I've done a similar spreadsheet myself which maps the payments against the settlement figure (based on rule of 78) but was struggling to check the APR - mainly because I couldn't figure out how to deal with the lump sum final payment.

The good news is that it works out correctly and the dealer cheat me

[yippym]

Originally Posted by yippym

Right been to the stealers and this is the PCP deal they propose. I am rubbish with numbers so can anyone tell me if this deal is at least reasonable? I will probably keep the car 2-3 years but the term of the PCP is over 4 years to keep monthly payments near to around £400 a month.

Cash Price = £53490

Cash Deposit = £21396

Deposit Percentage = 40%

Balence to Finance = £32094

Annual Milieage = 10000

Term = 48

Monthly Payment = £443.73

Final Payment = £23415.21

Thanks for all the advice, I have taken a lot of notes and here is my new finance figures which I got through a broker. What you guys think? Does it make a difference if I decrease the baloon and increase the payments? I will sign on the dotted line soon...

Hire purchase agreement

Cash Price = £53995

Cash Deposit = £24000

Balence to Finance = £29995

Term = 36

Monthly Payment = £315.58

Final Payment = £26000

[tisme]

Originally Posted by yippym

Thanks for all the advice, I have taken a lot of notes and here is my new finance figures which I got through a broker. What you guys think? Does it make a difference if I decrease the baloon and increase the payments? I will sign on the dotted line soon...

Hire purchase agreement

Cash Price = £53995

Cash Deposit = £24000

Balence to Finance = £29995

Term = 36

Monthly Payment = £315.58

Final Payment = £26000

Your first option comes in at 11.5% APR

The second HP option is 9.02%

In those circumstances, I'd go for the second option. But, please seek other advise too.

[tisme]

I have done a small update to the spreadsheet. It only affects people who make lump sum deposits during the loan period. The update is on redoak.

[vivekk]

Originally Posted by tisme

I have done a small update to the spreadsheet. It only affects people who make lump sum deposits during the loan period. The update is on redoak.

Nice work.

If you boys are in favour, I'll turn this into a 'sticky' & move it into off-topic, ok?

Viv

[tisme]

Originally Posted by vivekk

Nice work.

If you boys are in favour, I'll turn this into a 'sticky' & move it into off-topic, ok?

Viv

Fine by me and another member has emailed me another spreadsheet that is more sophisticated. I'm all for another link too. I am glad this thread has created so much interest - we want our cars to cost us as little as possible.