Car finance interest loaded upfront

robbond2021

I recently purchased a car on finance with close brothers. I made 2 x monthly payments of £, 1358 so a total of £2716 and yet only £70 came off the settlement figure, how can this be? 
It's a flat rate of 4.25% and the amount to borrow is £67k and my total to pay back is £81.5k over 60 months so basically £14.5k spread over the 5 years. 
I think I would expect to pay around £5k interest max in year one. So how come I have paid over £2.6k in the first two months? 
The car garage tells me they have loaded the contract and interest, is this even legal these days? 
Any help would be greatly received. 
Kind regards 
Rob

daveyjp

Is it a flat rate, or APR loan?

robbond2021

I think they said it was 8.4apr which works out as 4.25 flat not really sure what that all means, I can check the paperwork tonight? 

robbond2021

Good morning daveyjp sorry for the delay. It states 4.25% pa fixed for the duration of the agreement. Interest is calculated on the amount of credit on the date of the agreement for the duration of the agreement. Apr is 8.4%

Michaelc265

The interest will always be higher in the early stages of a personal contract purchase finance deal and lower later on because it is usually calculated based on the outstanding loan amount each month. As the outstanding debt decreases so does the interest but because the monthly payments are fixed it means you're paying more interest in earlier months and more principal in later ones.

That said, only reducing the settlement figure by £70 after 2 months of payments seems a bit extreme. The final payment/balloon payment amount could have something to do with it as I think there will be no interest element to this payment as it takes place at the end of the agreement. Is there any early repayment penalty clause in the agreement as well? That might also be a factor if there is and the settlement figure is taking this into account. 

There are various PCP calculators available online if you search (I don't think I can link under forum rules). You can then input the details of your agreement and see if they match your actuals.   

k3lvc

TBH I'd be more concerned that you've signed to borrow £67k @ 8.4% APR and don't understand how the finance works 

robbond2021

Thanks Michael I can confirm its hp not PCP and there is no balloon, so like you I think it's steep. I've contacted them today and waiting for a manager to call me back. Not so many thanks to K3L lol