Car finance APR

Jo_S1980

I’ve just got a car on finance (£9,500) 
the APR is 12.9%

But when I log on my total borrowing is 13,000 

I rang them and they said the interest is £3,700 as the APR is applied each year ! It’s a 48 month contract.

is this correct ? Shouldn’t it be 12.9% of the amount I borrowed (£9,500)

im confused . Can anyone advise . I feel like I’ve been well and truly done over ! And feel like it’s been mis sold .

advice much appreciated 

la531983

No, you just didn't understand how interest rates work, no misselling has taken place. What you were told on the phone is correct, the A stands for "Annual".

Ayr_Rage

That's a pretty high APR but you haven't been "done over" regarding the interest.

dunstonh

im confused . Can anyone advise . I feel like I’ve been well and truly done over ! And feel like it’s been mis sold .

No issues here.  They front load the interest payment. That is all.  That is normal on car finance.  If you were to pay it off early or overpay, they would rebate some of it.

maman

I think you've worked out simple interest instead of compound. 

Nearlyold

APR is the annual percentage rate, in your case it's 12.9% If you borrowed £10,000 and made no payments at all, after one year you would owe an additional £1,290 on top of the amount you borrowed.  You're paying the loan off with your monthly payments so the amount you owe reduces until eventually you have paid off  the amount you borrowed plus the interest that was charged on the declining balance. The £13,000 figure is the Total Amount you will pay and includes all the interest that will arise during the term of the loan. If you overpay or settle the loan early you'll save interest and your total payment will be less than £13,000.

Mr.Generous

Nearlyold said:

APR is the annual percentage rate, in your case it's 12.9% If you borrowed £10,000 and made no payments at all, after one year you would owe an additional £1,290 on top of the amount you borrowed.  You're paying the loan off with your monthly payments so the amount you owe reduces until eventually you have paid off  the amount you borrowed plus the interest that was charged on the declining balance. The £13,000 figure is the Total Amount you will pay and includes all the interest that will arise during the term of the loan. If you overpay or settle the loan early you'll save interest and your total payment will be less than £13,000.

Very well explained. APR is a guide, its the total owed as you said - but including all fee's. A low interest rate but with an admin fee, set up fee, final payment fee or whatever can be compared to someone elses loan by comparing the two APR's because they are the total cost of borrowing.

A bank loan is likely to be around 6% APR - a much better way to finance a vehicle for most people.

Edit:

Just checked my car loan, 6.3% interest and when I overpay an "interest adjustment" credit appears. I am not by any means an expert on loans (or much else) but I don't mind sharing experiences so we can all learn!

[Deleted User]

A bank loan is likely to be around 6% APR - a much better way to finance a vehicle for most people.

This! Everyday. Might not be able to get 6%, depending on £10K but certainly 10% is realistic.  You then own the car from day one too and you can sell it if a change of circumstances happened.

Great explanation of APR above.  They dealer who sold it to you should have made it clear what the monthly payments were and what the total amount repayable was.  This should also be very clear on your agreement but I know some lenders like to hide this info behind a few sums and size 6 font.  I don't think you could ever claim it was mis-sold to you but it is a learning opportunity. 

1. Always look for (and ask if possible) what the total interest payable and the total loan payable is.
2. Always check your high street options for loans before using specific consumer finance as they may be significantly cheaper.  MSE, Experian etc have great soft search tools to see what you could get without impacting your credit score.

A bonus one, never get PCP car finance!  The biggest rip off in consumer credit since sliced pay day loans.

DullGreyGuy

[Deleted User] said:
A bonus one, never get PCP car finance!  The biggest rip off in consumer credit since sliced pay day loans.

How do you see PCP to be worse than a HP agreement with a balloon? 

Whilst technically leasing isn't a form of consumer credit many will be considering it alongside PCP/HP etc and with Lease you lose the option of purchasing the vehicle if the market has moved in your favour so surely worse still than PCP?

As often with red top type headlines its equally not true in all cases, with our own PCP and its exceptionally low APR the total paid over the 36 months ended up being less than the depreciation of the vehicle as they'd grossly over estimated the residual value of the vehicle. Whilst we didnt have the capital to buy the car in full in principle had we done so the savings AER at the time was higher than the APR 

[Deleted User]

I am classing HP + Balloon alongside PCP.  I realise both are hire purchase at heart.  Traditional hire purchase has always been much better for the consumer where you pay the capital in full and own the car with no lump sum at the end.  Leasing is fine, you go into with your eyes open to hire a car, PCP you go into it with the opportunity and likely want to own the car.  You pay more interest relatively to a HP as the capital does not depreciate in the same way and 94% (est) do not pay the balloon payment.  Indeed you as a (I imagine) savvy person with financial matters will be able to make PCP work for you.  I am referring to the general consumer and their understanding of the product and how heavily it is pushed, so much so that around 90% of new cars are taken on PCP.  Tell someone from the 90s about PCP and they wouldn't touch it with a barge pole.  It was a vehicle to allow lenders, manufacturers and dealers to keep selling expensive new and used cars in volume at giant, unaffordable prices post financial crash.  Similar to interest only mortgages it allows consumers to get cars that would be too expensive if they were paying the capital too, overstretching their finances and leaving them with no asset at the end.  Consumers are paying for the most expensive part of the cars life, paying interest for the pleasure and in 94% of cases never owning it.   When handed back all of their investment and deposit is gone and they have no option but to get a new PCP, probably a cheaper one unless they have built up another deposit.  The dealer then goes on to sell it in a new PCP and they and the lender (often manufacturer linked) continue their gravy train.  Not to mention how heavily incentivised PCP is over any other finance product.  Then there are the underhand dealer tactics e.g. identifying users 50%+ through their PCP with cars with negative equity, persuading them to get a new PCP deal early and then the consumer stomaching the negative equity (usually rolled up into an inflated cash price of the new vehicle) so they don't have to when the GMFV rolls around.  Think its called 'lump and bump'?  PCP is a product with a purpose and a place, I just don't think enough consumers understand it fully and I do not think it is suitable for 90% of new car finance.  A survey a while back found a large % of dealers couldn't explain how it fully worked either.