Car loan - what does the interest rate mean?

onlyroz

Can somebody please explain the difference between the two interest rates shown in these "representative examples" (click the "Finance" tab):

here


They show an "Interest rate (fixed)" of 5.9%, and a "representative APR" of 14.7%. I understand that the representative APR is the APR that they offer to 51% of their customers, and must include other fees as well, but where does the 5.9% interest rate come from?

TadleyBaggie

The 5.9% will be the "flat rate", much loved by car dealers, as it appears to make their finance seem more attractive.

HappyMJ

onlyroz wrote: »

Can somebody please explain the difference between the two interest rates shown in these "representative examples" (click the "Finance" tab):

here


They show an "Interest rate (fixed)" of 5.9%, and a "representative APR" of 14.7%. I understand that the representative APR is the APR that they offer to 51% of their customers, and must include other fees as well, but where does the 5.9% interest rate come from?

14.7% includes all the fees and is a representative rate based on certain assumptions. Borrow more and the rate is lower due to fixed fees. Borrow less and the rate is much higher.

You'll be paying 5.9% interest on the amount that you borrow but add the fees in and it's about 14.7% in total.

CLAPTON

onlyroz wrote: »

Can somebody please explain the difference between the two interest rates shown in these "representative examples" (click the "Finance" tab):

here


They show an "Interest rate (fixed)" of 5.9%, and a "representative APR" of 14.7%. I understand that the representative APR is the APR that they offer to 51% of their customers, and must include other fees as well, but where does the 5.9% interest rate come from?

fixed rate is basically a fraud
(the actual calculation is the interest actually paid / car amount /period)

APR is the rate to compare with other loans

redpete

HappyMJ wrote: »

14.7% includes all the fees and is a representative rate based on certain assumptions. Borrow more and the rate is lower due to fixed fees. Borrow less and the rate is much higher.

I don't think that is correct.

A flat rate interest rate means that you will pay 5.9% of the amount initially borrowed each and every year for the term of the loan. So for a £10000 loan you will pay £590 each and every year in interest despite the fact that each month you are reducing the total amount you owe.

The APR is worked out on the basis that you owe, for example, £2000 at the beginning of the 5th year of a 5 yr loan.

Caz3121

Mrs Amanda, you are better taking your SPAM posts elsewhere
This is a UK forum so I guess your "legitimate loan company" (that has a gmail address!!!!!) will be unlikely to be lending $850,000 to anyone here

onlyroz

Thanks all, I think I get it now. Sounds like there are far better ways of obtaining a £7k loan than through a dealership.

iolanthe07

Sounds like there are far better ways of obtaining a £7k loan than through a dealership.

There are, but for people with less than perfect credit sometimes a dealer can get a loan that would be refused elsewhere. Just be sure to check for the APR, often hidden in the small print. Car dealerships are notorious for quoting flat rate interest. I don't know why they are allowed to get away with it.

~Brock~

CLAPTON wrote: »

fixed rate is basically a fraud

What a ridiculous comment when it is a legal requirement to show it on the loan agreement.......

iolanthe07

~Brock~ wrote: »

What a ridiculous comment when it is a legal requirement to show it on the loan agreement.......

The comment is not ridiculous. Although there is a legal requirement to show the APR, this is often hidden away in the small print with prominence given to the meaningless 'flat rate'. Other retailers don't do this; why should car dealerships?

nidO

~Brock~ wrote: »

What a ridiculous comment when it is a legal requirement to show it on the loan agreement.......

No it isn't, it's your comment that's ridiculous.

It's a requirement to show APR.

The whole reason it's a requirement to show APR is so that people actually have a comparable interest rate that uses a known method of calculation, precisely to help prevent people from getting conned by alternatives like flat/fixed rate calculations that look great but aren't.

Why on earth would you imagine showing flat rate interest is a legal requirement when pretty much the exact reverse is true, with APR being the legal requirement wholly to discourage the use of cons like fixed rate?