Question regarding payments on HP APR

betman21

hi there, had a quick look through my agreement form with the Bank of Scotland for my car which I got on Hire Purchase around 3 years ago.

I phoned up about this but never really got an answer to be honest.

my agreement says the total cash price is £14,200.74 with £5960.00 at 16.6% APR thats 1 payment of £486 and 59 payments of £336.

Now i am no banking expert or anything but 16.6% x £14200 =£2357 over 5 years.

My agreement says my total interest payable is £5960?

Can anyone with experience in this help me work this out, when i called they stated the system works it out and its more complicated than that. The lady also assured me no insurances were added.

Thanks in advance

davec1960

16.6% is the annual rate, you are borrowing for 5 years.

betman21

Thanks for the reply, still works out the same though.

14,200/5 = £2840 per annum x 16.6% = £471 interest per annum

£471 x 5 = £2355 over 5 years interest

BoGoF

betman21 wrote: »

Thanks for the reply, still works out the same though.

14,200/5 = £2840 per annum x 16.6% = £471 interest per annum

£471 x 5 = £2355 over 5 years interest

That's not how it works.....if only.....

At the start of the loan you are paying interest on the full amount borrowed, so very little of your payment is paying off the capital amount borrowed.

betman21

Thanks again.

Told you I was no good at working that out lol! Still dont understand how they work it then, seems more like 35% interest over the term than 16& but fair enough, wish I had checked that before I took out the damm thing, oh well 2 years left to go on it !

opinions4u

betman21 wrote: »

Thanks again.

Told you I was no good at working that out lol! Still dont understand how they work it then, seems more like 35% interest over the term than 16& but fair enough, wish I had checked that before I took out the damm thing, oh well 2 years left to go on it !

APR is an annual rate that allows you to compare the cost of credit to other lenders.

A very rough way to work it out (not precise, but to give an idea) ....

£5,961 is 42% of £14,200.

Some car dealers would desribe that as a flat rate of 8.4% a year (42% divided by 5).

Double this rate to 16.8% because you don't owe £14,200 for the full 5 years, your average balance for the term is (very roughly) half this.

Hope that makes sense.

CLAPTON

it works this way

you start by owing £14,200

so in the first month the interest is 14,200 x 16.6% /12 = 196 ; your monthly payment is 486 so the capital repayment is 289 so

in month 2 you owe 14,200 -289 = 13,910
and so the interest in month 2 is 13,910 x 16.6%/12 = 192 and your monthly payment is 336 so your capital payment is 143

so in month 3
you owe 13,920-143= 13,766
so the interest is 13,766 x 16.6%/12 = 190 and you pay 336 so your capital repayment is 145



by month 12
you owe 12,831
the interest is 12,831 x 16.6% /12 = 171 so the capital repaid is 164



etc etc
that's how it all works out



basically to buy a car worth (at most) 14,200 for over 20,000 over 5 years which is now presumably now worth about 3,000 seems a questionable purchase

Bravehearted_2

My question why did enter into such an agreement if you didn't understand the basic maths behind it?

You should have asked this question 3 years ago.

CLAPTON

Bravehearted wrote: »

My question why did enter into such an agreement if you didn't understand the basic maths behind it?

You should have asked this question 3 years ago.

basically because there are three types of people in the world; those that understand maths and those that don't

DCFC79

CLAPTON wrote: »

basically because there are three types of people in the world; those that understand maths and those that don't

and the third type lol

rdwarr

DCFC79 wrote: »

and the third type lol

Just don't go near a loan agreement