PCP APR vs APR are they the same thing

jpfbov

Hi, need some help please as I cant work out the difference, and I must be doing something wrong.  I’m looking at a new PCP deal from VW, but the amount of interest they want to charge doesn’t make sense.  I’ll try and explain:

Finance details:

£61,961.67 = Purchase price of new vehicle

£12,000.00 = My Deposit inc trade in value

£2,000.00 = Finance deposit/incentive

£47,961.67 = Total to Finance

£3,709.00 = Interest to pay @4.9% APR over 3 years on £47,961.67 (as per MSE loan calculator)

£51,670.67 = Total to pay including interest

£39,118.03 = Balloon payment (dont worry about this being large, there is a reason)

£12,552.64 = Amount to pay over 3 years (36 months)

£348.68 = Monthly payment over 36 months

 

The problem for me and I cannot understand is that the dealer are quoting me £6213.57 as the interest to pay over the 3 years, which then pushes the payments up to £429.82 per month

 

If I go online and look at multiple loan APR repayments they all come out around cost of Credit for the 3 years around the £3,700 range, but they have sent me a PCP calculator and I’ve done Car Wow PCP which takes the same details as above but comes out at the dealer amount.  I cant seem to find anywhere that says what the difference is between standard APR and PCP APR, am I being stupid thinking APR is APR. Does PCP APR calculate differently.

zagfles

You seem to be using a calculator which assumes you pay the whole loan off gradually over the term. You can't use that for PCP, PCP loans are different in that there's a big balloon payment at the end.

As a very rough approximation, you're borrowing £47962 and 3 years later you'll owe £39118. So on average, over the 3 years, you'll owe about £43500. At 4.9% APR that's £2131 a year so £6393 over 3 years. That's a very rough approximation but it's in the right ballpark, it's not quite right as it doesn't take account timing of payments or that the nominal rate will be lower than the APR but it give a rough idea.

ididgetwhereiamtoday

Scary numbers they are for a car. 

I don’t think I could sleep at night!

daveyjp

You pay interest on the £39,118 for three years as none of the capital is being paid off, that will account for the difference.

You also need to factor in repayments of the £12,000 deposit to yourself (£333 a month for 36 months).

You can now see why dealers and finance houses like PCP.

DullGreyGuy

APR is calculated the same way but MSE is working out that at the end of the 3 years you've paid the whole debt off whereas at the end you'll still have the balloon. 

If you look at the MSE numbers yes it has lower interest but has the monthly repayments as £1,435 whereas you are only being charged £348.68. This is the tradeoff with PCP -v- HP (without a balloon), you achieve the lower monthly payments through higher interest charges.