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Sorry sure this been asked a million times but dont see a definitive answer on it - pcp over 48 months on 23,250 @7.9% - 18 months in interest calculated on a  daily basis would equate to approx £2700 - have paid 9900 in payments but FC is saying only approx 3600 paid off in capital - therefore charging up to this point approx £6k in interest - that is massively front loaded - i thought this had been outlawed and secondly shouldnt it be made obvious in the paperwork if this is what they are doing?...7.9% apr on 23250 doesnt equate £4,000 per annum interest - any help gratefully received

Comments

  • Grumpy_chap
    Grumpy_chap Posts: 16,963 Forumite
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    What are the full details of the PCP?  Balloon payment.
  • Balloon 11,900 so not even paying it down?
  • DrEskimo
    DrEskimo Posts: 2,377 Forumite
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    edited 30 December 2020 at 3:10PM
    Interest is not charged equal across each year. It is not front loaded, it's simply mathematics. The proportion of the total amount of interest you pay will be highest in the first year, as the balance is highest. As you pay down the capital, the amount of interest that is charged goes down.

    Remember interest is charged daily on the capital outstanding.

    A PCP is slightly more complicated in that you have a balloon payment at the end that never decreases. This is only paid in the final payment. This means you are borrowing the balloon proportion of the loan at effectively an interest only loan, whilst the rest is a capital and interest loan. 

    In terms of actual interest charged in £, a PCP will always be more expensive, as the balloon doesn't decrease (that's why the monthly payment is lower, you are paying off less capital). This lower monthly cost comes at the expense of higher interest charges though.
  • Yes got that but even calculated daily on the higher amount @7.9% on 23,250 - as i said doesnt add up to circa £6,500 interest in 18 months only....7.9% x 23,250 = approx £5 per day - 547 days = £2752 and that is assuming 23,250 never reduces - hence i cant work out how interest charged is £6,500 - does that make any sense?
  • DrEskimo
    DrEskimo Posts: 2,377 Forumite
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    edited 30 December 2020 at 3:28PM
    What's the exact terms of the deal? How much was the car (sticker price), how much did you pay upfront, and how much are you paying per month?

    £23,250 borrowed over 48m at 7.9% with a GFV of £11,900 would be about £355 per month. That would be £6,390 paid so far, not £9,900?
  • 27250 4k deposit so loan 23 250
    350 per month for 18 months

  • apr 7.9%
  • ah that makes sense then thank you - they told me 9900 paid!
  • DrEskimo
    DrEskimo Posts: 2,377 Forumite
    Seventh Anniversary 1,000 Posts Name Dropper
    You're not accounting for the £4k upfront properly. That plus the £3,600 means you've paid about £7,600 capital, and therefore have paid around £2,300 In interest.
  • Funny thing is that user    bailey_uk asked the same question today.
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