Representative APR

tidds

Apologies as i'm sure this question has been asked many times and I have searched but I want to clarify my understanding.

On my vehicle hire purchase agreement it says Interest 5.1% - then says representative 9.9% APR.

My understanding of this is that the 9.9% is what they generally offer, but i've been offered 5.1%? Is this correct.

Apologies again just want to make sure!

Thank you folks.

[Deleted User]

No. Sounds like they've used both the flat rate (5.1%) and the APR (9.9%), which would be the same thing. Though it would be odd to have a representative APR on an agreement, as it should specify what rate you have.

What exactly does it say about the 5.1%?

tidds

It just says interest rate of 5.1% - I did the calculations of the term and interest and it worked out correctly at that being the figure. I don't really understand why it shows the 9.9% APR Representative.

Also, how could it use both?

[Deleted User]

What's the amount, the term and the total amount payable?

By using both, I meant they seem to reference both, even though they end up being the same thing. A flat rate is about half of the same interest rate expressed as an APR.

tidds

Ah okay! Annoyingly I don't have the documents with me, but they're due to email me this morning with a confirmation of details so i'll post up the figures then. Thank you!

CLAPTON

tidds wrote: »

Ah okay! Annoyingly I don't have the documents with me, but they're due to email me this morning with a confirmation of details so i'll post up the figures then. Thank you!

almost certainly the 5.1% interest rate doesn't take the declining balance into account
so its beloved by car salesmen as it make the loan seem cheap

if you are comparing with a bank loan use the APR figure

tidds

Ah, as if by magic:


Vehicle price £ 17,490.00
Deposit £ 3,500.00
Amount of Credit £ 13,990.00
Interest £ 3,629.60
Total charge for credit £ 3,629.60
Interest rate (fixed for the duration of the agreement) 5.19%
Interest 9.9% APR
60 monthly payments of £ 293.66
Total amount payable £ 21,119.60
Duration 60 months

[Deleted User]

There you go. They've slapped both rates in there. Your APR is 9.9%.

tidds

I wish I understood this better. So what does the first rate mean?

[Deleted User]

The first (flat) rate means that they will change you 5.1% on the full sum each year. So 5.1% on 14k until it's paid off.

The APR means they will charge you 9.1% on the declining balance. So 9.1% on £14k on day 1, through to 9.1% on £1 (for example) at the end.

That's why it works out to the same thing, but one has the advantage (to the lender) of looking a lot lower.

tidds

That's really really useful! Thank you! I understand now.