Help - Fixed Sum Loan Agreement

Greylag08

I'm helping with someone's estate. They have a fixed sum loan agreement for a car. I cannot get the interest calculations to work out and hope someone understands these things.


The Interest Charge is £2667.17 on an Amount of Credit of £11804.63. There is one payment of £275.90. Then 41 monthly payments of £235.90. Then a final payment of £4524.00.


The documentation shows an Interest Rate (per year) of 4.15% and an APR of 9.3%.


I make the total repayable £14471.80. I cannot see how this equates to 4.1%. Am I being thick? There appears to be about £911 extra over the 43 months.


Any help would be much appreciated - it's driving me nuts.

thebritishbloke

I put them all in to this APR calculator and it came up as 9.4%, so I'd say it's right!

Greylag08

Thanks for helping tbb. Agree that calculator works out APR correctly.


What puzzles me is that the total interest charge of £2667.17 seems to work out at about 6.3% and not the 4.15% stated on the documents. That is, £2667.17 over 43 months is £744.32 pa. Surely, 4.15% should be £489.89 pa?


I guess I'm missing something obvious here.

chalkie99

The 4.15% is the "flat rate" which is typically used by motor traders to confuse the buyer into believing they are getting a lower rate than elsewhere.

The APR rate is typically about twice the flat rate and is the one you should be working on.

FireWyrm

So, what is a 'flat rate' in this context exactly and why are they allowed to quote it if it is an artificial number that is half the actual APR you will be paying?

Clive_Woody

FireWyrm wrote: »

So, what is a 'flat rate' in this context exactly and why are they allowed to quote it if it is an artificial number that is half the actual APR you will be paying?

See below

If the three little letters A, P and R don't follow the rate of a personal or car loan… danger! APRs automatically mean the rate is charged on any outstanding debt. Borrow £5,000 over 5 years and by the last year you only pay interest on the amount remaining, say £1,000. At 6% APR the total interest is £800.

With a flat rate the interest is charged on the original amount borrowed, no matter what's been repaid, so in the last year you still pay interest on the whole £5,000. With a 6% flat rate, the total interest is £1,500.

Hence 6% sounds cheap but is roughly equivalent to a costly 12% APR. So if the salesman's given you an interest rate, before you sign any credit agreement, always check the rate that's mentioned on there - it's illegal for consumer credit agreements not to have the APR on them.

http://www.moneysavingexpert.com/banking/interest-rates

Greylag08

Thanks everyone. I understand the Flat Rate/APR difference but even using the given flat rate calculation, ie on the whole amount for the whole period, I cannot get the figures to work. Anyone out there want to try it?

thebritishbloke

Greylag08 wrote: »

Thanks everyone. I understand the Flat Rate/APR difference but even using the given flat rate calculation, ie on the whole amount for the whole period, I cannot get the figures to work. Anyone out there want to try it?

Can't help on that front I'm afraid, I'd just accept that it's correct based on the APR calculations.

Clive_Woody

Greylag08 wrote: »

Thanks everyone. I understand the Flat Rate/APR difference but even using the given flat rate calculation, ie on the whole amount for the whole period, I cannot get the figures to work. Anyone out there want to try it?

I put the figures in on this website and it came out with an APR of 9.8% which isn't far off what you quoted.

http://money-saving-calculators.prudentminds.com/apr-calculator.html