APR on Flexible loan

Simongo1

Good morning, I am new on here and am after some advise please.

I had a national window company come and see me for a quote on new windows and doors and am interested in going ahead.

They offer finance through Hitachi and I receive a discount for using their finance which I don't get for paying cash (The sales person admitted that they receive a commission from Hitachi and they simply pass some of that back on)

I do need to borrow to enable me to get the windows and was looking online and was thinking of a personal loan.

However, when I looked into the finance, I could see that I could make overpayments and interest was calculated daily and charged each month which basically meant I could control how much total interest I would be charged.

The finance was for a maximum 8 years (if it ran 8 years, Hitachi would make a fortune from me) however, i could make over payments as and when I like and when I came to settle I would only be charged 2 months interest on the balance.

I did some sums and worked out that if i did make overpayments, it would work out cheaper than a personal loan.

The bit that scared me however was the APR which was over 20%. The salesman tried to explain that the APR was if I didn't make repayments and that it is the interest rate that I need to focus on which was charged monthly.

I did pretty much understand the loan and worked out some figures which definately works out cheaper than a personal loan and I rang Hitachi to confirm I could make overpayments and reduce the interest which they confirmed, however I'm still worried about the APR.

Can anyone in simple terms explain why the APR is so high in comparison to a personal loan when it can actually end up costing a lot less if I make overpayments.

I want to go ahead with the order but need peace of mind on the APR.

Many thanks

Peelerfart

Simongo1 wrote: »

The bit that scared me however was the APR which was over 20%. The salesman tried to explain that the APR was if I didn't make repayments and that it is the interest rate that I need to focus on which was charged monthly.

APR is the interest rate that you need to focus on.

All kinds of alarm bells are ringing saying "don't do it"

Simongo1

Peelerfart wrote: »

APR is the interest rate that you need to focus on.

All kinds of alarm bells are ringing saying "don't do it"

Thanks Peelerfart This is what confuses me - There was an annual interest rate and an APR which was much much higher. I really don't understand APR - The adverts on the TV for payday loans show APR's of over 2,000% yet when you look at how much interest you actually pay, it's nowhere near that amount.

I am very tempted to get the loan and after speaking with Hitachi they confirmed that I'm in control of how much interest I pay. Basically, I can control the blance by making overpayments and whatever balance I have at the end of the month, my interest is 1.79%. I don't have the funds to pay cash but will be able to make large overpayments over the next 12months and have it clear at a cost a lot less than a personal loan with a low APR.
Why is the APR so much higher than a personal loan?

Peelerfart

Don't get confused with PDL APR's they have no relevance to your kind of loan.they are for small amounts and a very quick payback(or should be anyway).

If you are convinced that you can make overpayments and clear the balance quickly then you will be paying a higher rate of interest for that flexibilty,over a fixed APR/term high street loan.

However you can still make overpayments on high street loans too,might be worth talking to your bank about this.

It always makes me wary when I read -

"The sales person admitted that they receive a commission from Hitachi and they simply pass some of that back on"

We all know who is paying for this .

Simongo1

Peelerfart wrote: »

Don't get confused with PDL APR's they have no relevance to your kind of loan.they are for small amounts and a very quick payback(or should be anyway).

If you are convinced that you can make overpayments and clear the balance quickly then you will be paying a higher rate of interest for that flexibilty,over a fixed APR/term high street loan.

However you can still make overpayments on high street loans too,might be worth talking to your bank about this.

It always makes me wary when I read -

"The sales person admitted that they receive a commission from Hitachi and they simply pass some of that back on"

We all know who is paying for this .

Thanks Peelerfart. I have actually rang the companies head office and spoke to the department that deals with the finance to ask about the commission. They confirmed that Hitachi do indeed give commission for every customer they introduce to them. Instead of keeping the commission they pass it on to the customer. I asked them why they did this and was told that they sell a lot of their business on finance and without the finance facility they wouldn't generate as much business - so to incentivise people to go ahead with the order they pass them the commission by way of discount which they can't give if they pay cash as they wouldn't receive commission for cash customers. Once explained to me it made sense. They said they would rather make a profit on their product as opposed to making profit on finance - Offering finance helps them to sell more product.
The only thing that still really confuses me is the APR - If I was to pay this loan off quickly, which I am entitled to do, I will pay very little interest yet the APR still shows as over 20%.
If I got a personal loan I wouldn't be entitled to the discount which would mean the cost to me would be higher even if I could make overpayments.

Why is the APR on this flexible loan so much higher than the APR on a personal loan? In fact what is APR - I thought it was the interest rate and it appears not to be.

Saints2011

I suggest you look at this link, it should help you understand APR

opinions4u

The only thing you should buy from a window company is windows (and maybe doors).

If you need to borrow to finance them, do it elsewhere.

Simongo1

Thanks Saints 2011 - I think I understand it now. My undertstanding is that it shows what you will pay over the full term of the debt.

This makes sense as the total amount payable over 8 years is laughable. However it doesn't account for overpayments which is what I intend to do.

I am going to go for it as for me it will be the best way to fund my windows - I get a good discount as the company will pass their commission on to me, so I don't have to borrow as much as I would have to if I took out a personal loan.

I am able to make lump sum payments and have it settled in a short period of time - I have looked at all the figures and I do stand to save money by funding it this way as opposed to a personal loan.

Plus looking into the information the salesperson left me, I am covered by Equal liability in that Hitachi are equally liable for the gaurantee I receive from the company.

Thanks for your help everyone.

Apples2

Why not get a personal loan and make overpayments on that instead?
There is not a cat in hells chance these guys are sacrificing their commision to give you the best price, none at all.

There is a reason these places have finance already in place for customers - It is VERY profitable. that profit comes out of your pocket, no-one elses.

Do it simply - Get a Personal Loan from a bank at a much better APR and overpay.

Sounds like you have already agreed a price. STICK TO IT. They won't pass up the sale if you reject the finance, the profit margins are more than healthy enough.

Simongo1

Apples2 wrote: »

Why not get a personal loan and make overpayments on that instead?
There is not a cat in hells chance these guys are sacrificing their commision to give you the best price, none at all.

There is a reason these places have finance already in place for customers - It is VERY profitable. that profit comes out of your pocket, no-one elses.

Do it simply - Get a Personal Loan from a bank at a much better APR and overpay.

Sounds like you have already agreed a price. STICK TO IT. They won't pass up the sale if you reject the finance, the profit margins are more than healthy enough.

Thanks Apples2 - I'm have looked fully into the package and I'm going to go for it. I was suspicious over the fact they could give me a discount on finance but not for cash (I would be borrowing the cash through a personal loan). I did insist that I wanted the lowest price and would pay cash (he didn't know I didn't have the cash) but he was adamant that he couldn't do it, that the discount came from the commission the finance company paid - This was confirmed by their head office.
The company are reputable I got three national companies to give me a quote and this company was by far the best and didn't try and force me to sign up like the other two did and they were reasonably priced.
I have spoken to a family friend who purchased from this company around 5 years ago. She used the finance (although it was GE Money) and she made lump sum payments getting it settled pretty quickly with very little interest paid - She was more than happy with it.
My only concern with a personal loan is that in my experience, they advertise a certain rate and if you don't meet their criteria your offered a rate which is much higher - With Hitachi it's a standard rate for all - if your accepted you get the rate advertised.

I've not gone into this lighty and the calculations I have made show it to be a good method of funding my windows. I have no intention of letting it run for 8 years which would be expensive - I intend in paying it back within a year and have put a spreadsheet together to work out the total repayable on a monthly rate of 1.79% and it is very favourable. I have spoken to the company and Hitachi and am happy with the info they have given me.

Simongo1

..... Also a big reason I am going to go for it is the equal liability I receive with the finance.
I asked Hitachi about this and they confirmed that by law (some section of the consumer credit act) that they are equally liable for the gaurantees and service levels for the whole guarantee duration whether I pay off on day one or let it run the full term.
You always hear horror stories about windows so it gives me a little peace of mind knowing that if I do have any problems, I can pick up the phone to Hitachi and they are legally liable.
I asked the lady if I would get this cover if I took out a personal loan and she told me that I wouldn't - Apparantly you only get this cover when you purchase on a credit card or finance as the credit card/finance company pay on your behalf, they are liable.