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PCP deal interest rates

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Has a car salesman ever been able to tell you how the monthly payment on your shiny new car is calculated? I’d be willing to be he hasn’t; all they do is bash some numbers into a laptop, and out pops the finance quote. Certainly this has been my experience when looking to change my and my daughters cars recently.

We looked at several manufacturers and the PCP deals they were offering and after doing a number of comparisons, I realised that the numbers didn’t quite seem to fit. So after doing some digging, I came across something called ‘balloon interest’ calculations which are designed for this type of financing model.

I built a spreadsheet, plugged in the numbers I had obtained for Mercedes, and to my joy, they were absolutely spot on to the penny.

I then plugged in the numbers from Mazda and found the results I was getting were significantly less than the finance quote Mazda had given!

I discovered (and have had confirmed in writing) that Santander (Mazda's finance provider) are using the much higher 3.8% APR rate in the formula rather than the 2% fixed rate which I have been lead to believe should be used.

Mercedes and others use the lower fixed annual rate.

Can anyone confirm which rate should be being used?
Thanks.
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Comments

  • [Deleted User]
    [Deleted User] Posts: 35,242 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    It doesn't matter as they're both the same.

    APR is easier to work with and allows you to see the impact of early settlement.
  • YorkshireBoy
    YorkshireBoy Posts: 31,541 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    edited 19 August 2018 at 4:59PM
    Spanglekat wrote: »
    Has a car salesman ever been able to tell you how the monthly payment on your shiny new car is calculated? I!!!8217;d be willing to be he hasn!!!8217;t; all they do is bash some numbers into a laptop, and out pops the finance quote.
    I bought an approved used Jag a couple of months ago on PCP* and the dealership paperwork told me exactly how the deal was put together.
    Can anyone confirm which rate should be being used?
    They may quote a fixed interest rate, but the paperwork must tell you the APR too.


    * I was a cash buyer but they were offering a £1,500 contribution, and it would have been rude not to take it. Withdrew from the agreement 2 days later, and paid it off.
  • Eh? How do you arrive at that conclusion? 2% fixed interest gives a monthly payment of £185 pcm whilst 3.84% gives £198 pcm which is an additional £500 over the life of the deal?
  • Yes, but which value did they plug into the formula?
  • Edi81
    Edi81 Posts: 1,501 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    Ah the old car salesman!!!8217;s friend the flat rate!
  • bazzyb
    bazzyb Posts: 1,586 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    Spanglekat wrote: »
    Eh? How do you arrive at that conclusion? 2% fixed interest gives a monthly payment of £185 pcm whilst 3.84% gives £198 pcm which is an additional £500 over the life of the deal?

    You said 3.8% was the APR, not the flat rate. 2% flat/fixed is roughly equivalent to 4%ish APR, depending on figures, term, and any fees involved.
  • What I am trying to get at is what value should be used for IRR in the formula below? APR or Annual Fixed Rate? Mercedes use the fixed rate, Santander use the APR. Which is correct?

    GFV = Final Payment Value
    IRR = Monthly Interest Rate

    Instalment=(Amount Financed-(GFV/(1+IRR)^(Term+1) ))/(1-(1/((1+IRR) ))^Term )×IRR
  • bazzyb
    bazzyb Posts: 1,586 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Photogenic
    Spanglekat wrote: »
    What I am trying to get at is what value should be used for IRR in the formula below? APR or Annual Fixed Rate? Mercedes use the fixed rate, Santander use the APR. Which is correct?

    GFV = Final Payment Value
    IRR = Monthly Interest Rate

    Instalment=(Amount Financed-(GFV/(1+IRR)^(Term+1) ))/(1-(1/((1+IRR) ))^Term )×IRR

    Neither.
    APR & flat rates are annual, the IRR here is monthly.

    What are you trying to achieve? This seems to be overcomplicating things somewhat. If you want to compare the quotes then both should show an APR, even if one uses the flat rate. Or there are plenty of free calculators available if you want to punch your numbers in - just do an internet search for PCP calculator.
  • Basic maths = double the flat rate to give approx. APR.

    Car salesmen and women have been trying to hoodwink you with flat rates to make deals look better since cars were invented.

    By now I would have thought that most savvy people would have added up their sums before going near a dealership.
  • I think, most of salesman don't understant it themselves. They just use the system to generate quotes. The same for finance products.

    BTW, here's PCP Calc: http://www.pcpcal.co.uk/index.php
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