PCP car finance - something doesn't add up?

Bruce_GT3

Hi there,

I'm hoping I posted this in the right forum, so here goes;

I've just negotiated a deal on a car, and have been given a quotation for a PCP as follows;

Purchase price of the car = £15995

Part ex. (used as deposit) = £5200

GFV of new car = £6494

This gives an outstanding finance balance = £4301

The PCP term is for 36 months with a flat rate of 4.25%

I calculate that the interest on the finance = £548.38 (4.25/12*36*£4301)

and the interest on the GFV = £827.99 (4.25/12*36*£6494)

which implies that the total to pay should be £4301 + £548.38 + £827.99 = £5677.36

This gives a monthly repayment of £5677.36 / 36 = £157.70

However, I have been quoted a monthly repayment figure of £197 and have been told that the "total interest charge comes to £2618".

Surely £2618 cannot equate to a flat rate of 4.25% over 3 years?

Can anyone fathom this out? Have I got my sums wrong?

TIA,
Bruce

standupguy

The way you have calculated the interest on the gfv is not correct.

Your figure of £827 interest assumes you are repaying the gfv monthly as with the rest of the Finance - in other words you are assuming in your calculations that the gfv figure reduces monthly.

However, the gfv is outstanding for the full 36 months and you will be paying interest on this £6494 for the full 36 months - this means the rate of interest will equate to the true rate of interest or APR rather than the flat rate you are attaching to it

Put simply if you did without the gfv, your monthly payment would be much higher but you would then actually pay the amount of interest you have calculated.

It is the gfv that is outstanding for 36 months that is causing the extra interest

CLAPTON

as standupguy says the gfv actually costs about 1,743 in interest over the three years (4.25% flat is about 8.25% APR )