Problems with early resettlement of bmw car loan

Graemeyh

Hi. Hope that some wise, experienced moneysavingexperters with an understanding of maths might be able to offer me some advice on an early resettlement of car loan taken out with BMW finance in 2008.

I took out a car loan, straigtht HP type a non variable rate of 8.7 APR with BMW in August 2008. I was told at the time by the garage I bought it from that this was an "incredible rate at just over (the then) BofE base rate of 4.5%". It was actually 8.8% but there we go.

After swapping in my old car the total amount repayable over 48 months was £22167.68 at £457 per month (including £149 arrangement fee and additional fees of £65 and £10 at end of repayment period). On the agreement there were settlement figures at 1/4 of term of £14654 1/2 of term of £10,219 and and 3/4 of term of £5371. The 3/4 of term was back in August.

I am now in a position to repay the remaining balance with seven months to go. Given that total interest on the car loan was £3347.40 and that £1269.23 in interest was paid in year 1, £967.72 in year 2, and £689.54 in year 3, I had worked out that in the last year that £420 would be due in interst in the last year and that 7/12th's of this would be around £240 plus remaning capital minus there final fees (£65 and £10), I was expecting a repayment figure of £2933 give or take a few pounds. On enquiring of BMW financial services I was amazed to receive a reply that indicated that the settlement figure would be £3240.96 - ie £40 MORE than if I let the loan just run. The rebate (for interest still to pay £240+ - I presume - was a mere £34.16. This bears no relation to the figures that they use in the early settlement figures qouted above.

Can someone help with the maths here? Of course, I could just let the loan run. But I have slowly been ridding myself of all debts and this is the last one. But I have the distinct feeling of being ripped off - and I dont like it! But if I am wrong please tell me

Many thanks for any help in advance.

Revd Graeme Hancocks

Xbigman

I haven't analyzed the actual numbers but I'm pretty sure your problem is that your loan was 4.5% 'flat rate'. That means you pay 4.5% interest on the whole balance for the life of the loan (as opposed to the equivelent 8.8% loan being calculated on a reducing balance).
With flat rate loans settlement figures aren't worked out on the remaining balance but on the whole amount of the loan. Which works out dearer. With 7 of 48 payments to go I'd have thought you'd make some saving but its possible that it works out that you don't.


X

skintdad

is there a penalty charge for early settlement? xbigman right about the flat rate. i used to work for hbos and we could give a rough comparison by doubling the flat rate and taking off 0.5% to find the approximate apr

JSR

There is normally a charge of 2 months interest for early settlement. It's also possible your last payment was too recent to be included in the settlement figure. In that case you'd receive a refund when the account was closed.

iolanthe07

I can't understand how car dealerships are allowed to go on hiding their true interest rates by quoting flat rate. Many people are taken in by this deceit, and no other business gets away with it.

Graemeyh

Thanks for reply. No, no penalty charges.

Common_Sense_2

iolanthe07 wrote: »

I can't understand how car dealerships are allowed to go on hiding their true interest rates by quoting flat rate. Many people are taken in by this deceit, and no other business gets away with it.

They might quote the flat rate to the customer, but ultimately it is the APR that is shown clearly on the draft finance agreement, SECCI, and the finance agreement that the customer ultimately reads and signs so you can't hide it.

stusan

I posted this on another hp problem, check your schedule of payments, is the last payment much higher than the others, this could explain the difference.

blacksta

I am guessing it is wrong to have flat rate and an Apr on the single contract. Which is actual true interest rate.

Graemeyh

Hi. No. All repayments the same. I had a reply from BMW which seemed to show virtually all interest was taken in first 41 months and barely any in last 7 months. I will take it FOS buit dont hold out much hope. But shall give them a good run for their money.