Car Loan interest rate calc

chewie

Hi there

We're in the midst of a car purchase battle between the new and used dealership for one manufacturer, and I wanted to ask peoples thoughts on how interest should be calculated over a loan term.

For example, let's say that after deposit there is 10,000 left in the vehicle value.

The loan would be over 4 years at 5% "flat rate interest" (words of the salesman). He calculated this as 5% year on year = 20% over the term.

I'm wondering if this is the appropriate way to calculate interest?

Very much appreciate anyone's help

Thanks

Paully232000

chewie wrote: »

Hi there

We're in the midst of a car purchase battle between the new and used dealership for one manufacturer, and I wanted to ask peoples thoughts on how interest should be calculated over a loan term.

For example, let's say that after deposit there is 10,000 left in the vehicle value.

The loan would be over 4 years at 5% "flat rate interest" (words of the salesman). He calculated this as 5% year on year = 20% over the term.

I'm wondering if this is the appropriate way to calculate interest?

Very much appreciate anyone's help

Thanks

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

have a look at this page, and the section on 'Watch out for flat interest rate loans' part way down the page. Explains it

I think that the total amount you will pay back is £12,000 on £10K at that flat rate so i can see where he gets 20% from.

molerat

Flat rate is the usual car salesman way of expressing interest - sounds cheaper than 9.6% APR which is what £10K paid back at £250 pm over 4 years is. Any loan paperwork must show the APR.

iolanthe07

I don't know why car dealerships are allowed to get away with quoting flat rate, even if the APR is hidden somewhere amongst the small print. It is highly misleading. AFAIK every other trader quotes APR.

chewie

Paully232000 wrote: »

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

have a look at this page, and the section on 'Watch out for flat interest rate loans' part way down the page. Explains it

I think that the total amount you will pay back is £12,000 on £10K at that flat rate so i can see where he gets 20% from.

Thanks! That article definitely helped!