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PCP deal interest rates
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Spanglekat
Posts: 7 Forumite

in Loans
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.
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
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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.0 -
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.Can anyone confirm which rate should be being used?
* 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.0 -
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?0
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Yes, but which value did they plug into the formula?0
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Ah the old car salesman!!!8217;s friend the flat rate!0
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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.0 -
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 )×IRR0 -
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.0 -
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.0 -
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.php0
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