Motonovo Hire Purchase

ProjectVRD

I have an agreement for £11,190 over 60 months @ 4.99%. Overall total due is written as £17,430.80.

Does this sound right?

The details broken down as such:

Cash Price: £14,390.00
HP Advance: £11,190.00
Deposit: £3,200.00
Interest: £2,791.00
Administration Fee: £149.00
VAT on purchase of vehicle: £2,143.19

Overall Total Due (including Optional Option to purchase vehicle): £17,430.80

What is this optional option? Ofcourse I am purchasing this car, not through an option. Does it mean I charged for completing my payments?

Johnmcl7

I might be wrong here but I assume the 4.99% is flat rate which means the APR is around 9.7% so the rate looks lower than it is although still not bad.

John

SeanG79

The figures are correct. The agreement should also state the APR which will be ±double the flat rate.

Total due includes your deposit contribution.

The option to purchase is a standard fee charged on all HP agreements. The amount varies from lender to lender, its essentially like an admin fee.

iolanthe07

Quoting flat rate rather than APR is a common trick among car dealerships, and should be outlawed, imho.

SeanG79

iolanthe07 wrote: »

Quoting flat rate rather than APR is a common trick among car dealerships, and should be outlawed, imho.

In reality it is simpler to work with flat rates than APR for the average person as you can use your standard hand held calculator to work out rates. The documents all include APR on them, so IF the customer reads the documentation before signing they will always know the APR in any event.

Also dealers are given a flat rate from most of their lenders and sell the finance based on that rate, they are not given an APR as a rate as this includes doc fees etc. which will change the APR based on the term, where the flat rate on the sum borrowed remains fixed no matter what the term.

iolanthe07

In reality it is simpler to work with flat rates than APR for the average person as you can use your standard hand held calculator to work out rates.

That's all very well, but the average punter doesn't necessarily understand the difference, and is consequently ripped off - especially when buying a car when the heart often over rules the head. Anyway, no one else quoyes flat rate, so how are car dealerships allowed to get away with it? I know it is in the small print, but sadly people don't always read it or understand it.

~Brock~

It is a requirement of consumer credit agreement regs that it is not only the APR that is quoted, but also the rate used to calculate the interest charge. The APR is simply the product of the overall cost of credit, which may also include fees and charges.

So....as SeanG79 correctly points out, the agreement should also state the APR, and assuming it does will be perfectly correct.

The argument about who quotes what rate is pretty pointless (in terms of the agreement itself), as this is clearly not reason for the original post.

SeanG79

You'll find the motor industry was using flat rate finance before the inception of APR which was only added to the consumer credit act in 1980.

APR is also something unique to UK and EU in terms of how it is calculated. USA have their own version of APR.

Ask the average person what APR is and they cant tell you, ask them how APR would be calculated and very few people would be able to tell you. APR is essentially also flawed because selected fees are excluded from the calculations...

~Brock~

SeanG79 wrote: »

APR is essentially also flawed because selected fees are excluded from the calculations...

Not sure I agree with that. APR is supposed to include ALL costs of credit including all fees, charges etc.

In order to calculate a loan APR all you need is the net loan amount, the term and the monthly payment schedule (term/amounts). How the cost of borrowing is made up (i.e. interest or charges) is completely irrelevant to the calculation.

SeanG79

~Brock~ wrote: »

Not sure I agree with that. APR is supposed to include ALL costs of credit including all fees, charges etc.

In order to calculate a loan APR all you need is the net loan amount, the term and the monthly payment schedule (term/amounts). How the cost of borrowing is made up (i.e. interest or charges) is completely irrelevant to the calculation.

Firstly this is completely off the subject of the OP's initial post but for example in property loans solicitors fee's are compulsory (stipulated by the lender) but excluded from the APR unless incorporated into the amount borrowed.

In order to calculate the APR correctly you need to know the amount borrowed, the monthly payments, term, any facility/admin/documentation fees and any option to purchase fee charged at the end of the agreement. Often the fees are not part of the monthly repayments but paid up front with the deposit or paid at the end of the agreement but ARE included in the APR calculation. If they weren't it would be a simple calculation