Car finance based on Libor

[Phooey]

Guys,

What is the general feeling of financing a £50k+ car based on the Libor? Last year i had a quote from Jamie at Performance car finance, he did me 2 quotes - simply put - the quote based on Libor was quite a bit cheaper than the other quote, which was a fixed monthly payment + deposit and final payment.

Cheers

[R11ysf]

Depends if there is another banking crisis - in which case you may well get nailed to the wall on it. If not and it continues to normalise then it'll be 0.3% or thereabouts above base rate.

[Phooey]

Thanks Rhys. Obviously a gamble then, but (and i need to check on this) i am sure you can get out of the agreement by paying a 1 month penalty on top of the balance you already owe - so, not too much of a gamble. Certainly on the face of it, sounds an attractive way to borrow £50k+. Or am i missing something

[ShadownINja]

Phooey said:

you can get out of the agreement by paying a 1 month penalty on top of the balance you already owe - so, not too much of a gamble.

On top of? Just thinking aloud... presumably, you don't have the 50k to hand or you wouldn't be asking... now... if there's another crisis and you can't pay, your plan is to borrow the outstanding (let's say £35k) or sell the car... now, if there's another crisis, you will find it hard to borrow money plus sell a £35k car. Is this correct?

[Phooey]

ShadownINja said:

Phooey said:

you can get out of the agreement by paying a 1 month penalty on top of the balance you already owe - so, not too much of a gamble.

On top of? Just thinking aloud... presumably, you don't have the 50k to hand or you wouldn't be asking... now... if there's another crisis and you can't pay, your plan is to borrow the outstanding (let's say £35k) or sell the car... now, if there's another crisis, you will find it hard to borrow money plus sell a £35k car. Is this correct?

On top of the remainder of the loan outstanding, so for example if my monthly payment was £700 - this would be the penalty for settling early. As said, i can not remember *exactly* what the early payment penalty was, but have a feeling it was 1 month - obviously i would check this if i was to go down this route.

Another crisis - who knows, but if so, i will worry about selling the car then. If need be.

[ShadownINja]

Phooey said:

ShadownINja said:

Phooey said:

you can get out of the agreement by paying a 1 month penalty on top of the balance you already owe - so, not too much of a gamble.

On top of? Just thinking aloud... presumably, you don't have the 50k to hand or you wouldn't be asking... now... if there's another crisis and you can't pay, your plan is to borrow the outstanding (let's say £35k) or sell the car... now, if there's another crisis, you will find it hard to borrow money plus sell a £35k car. Is this correct?

On top of the remainder of the loan outstanding, so for example if my monthly payment was £700 - this would be the penalty for settling early. As said, i can not remember *exactly* what the early payment penalty was, but have a feeling it was 1 month - obviously i would check this if i was to go down this route.

Another crisis - who knows, but if so, i will worry about selling the car then. If need be.

Oh, you mean the monthly payment of the outstanding balance rather than the balance itself.

[Phooey]

ShadownINja said:

Phooey said:

ShadownINja said:

Phooey said:

you can get out of the agreement by paying a 1 month penalty on top of the balance you already owe - so, not too much of a gamble.

On top of? Just thinking aloud... presumably, you don't have the 50k to hand or you wouldn't be asking... now... if there's another crisis and you can't pay, your plan is to borrow the outstanding (let's say £35k) or sell the car... now, if there's another crisis, you will find it hard to borrow money plus sell a £35k car. Is this correct?

On top of the remainder of the loan outstanding, so for example if my monthly payment was £700 - this would be the penalty for settling early. As said, i can not remember *exactly* what the early payment penalty was, but have a feeling it was 1 month - obviously i would check this if i was to go down this route.

Another crisis - who knows, but if so, i will worry about selling the car then. If need be.

Oh, you mean the monthly payment of the outstanding balance rather than the balance itself.

'
Just found the quote - admittedly this was done in April 2009, but does say - '10 days penalty interest for early settlement'. Overpayments allowed.

The 'one month penalty for early settlement' was actually on the fixed monthly finance quote, and not on the LIBOR based quote. Overpayments not allowed.

[Mr Car Finance]

If it is of any use...here is the following...ING have currently set their 3 Month LIBOR Rate at 3% over base, this is considerably higher than the 0.3-0.5% currently being used by other lenders...ie Lombard. Should you go full term on a LIBOR rate with Lombard and the LIBOR rate increases during the term of the agreement then the final term may extend by a month or two to cope with the variation in LIBOR rate at final term compared with LIBOR starting rate relating to total interest paid.

With ING setting a sensible if not slightly higher LIBOR Rate you are better off and better covered. It may be the case that you are probably paying slightly more interest each month but towards the end of the contract your final payment or end date may be shorter due to more interst being paid over the term based on the higher LIBOR Rate over the full term.

With Variable rate loans by rule of thumb there is outstanding Capital plus a 30 day interest penalty when settling, if fixed rate then an actuarial rate will be used to calculate a settlement figure, this will be more than a Variable rate settlement figure. Finally in order to qualify for a LIBOR 3 month rate you need to prove High Net Worth, this would mean having a NET income of more than £150k or NET Assets excluding residential home of more than £500k, both these have to be verified by a certified accountant.

Finally, there are no voluntary terminations available with the fixed rate HIGH NET WORTH or the VARIABLE RATE agreements. By proving high net worth you are voluntarily opting to have an agreement outside of the rules of the Consumer Credit Act which then means you are unable to take advantage of Voluntary Terminations or Handbacks.

Its a mine field when trying to finance high priced vehicles. Some lenders are very strict on criterea and are very strict on Balloon payment plans. Good luck, I hope this info was of use to you

[NoelWatson]

Mr Car Finance said:

If it is of any use...here is the following...ING have currently set their 3 Month LIBOR Rate at 3% over base, this is considerably higher than the 0.3-0.5% currently being used by other lenders...ie Lombard. Should you go full term on a LIBOR rate with Lombard and the LIBOR rate increases during the term of the agreement then the final term may extend by a month or two to cope with the variation in LIBOR rate at final term compared with LIBOR starting rate relating to total interest paid.

With ING setting a sensible if not slightly higher LIBOR Rate you are better off and better covered. It may be the case that you are probably paying slightly more interest each month but towards the end of the contract your final payment or end date may be shorter due to more interst being paid over the term based on the higher LIBOR Rate over the full term.

With Variable rate loans by rule of thumb there is outstanding Capital plus a 30 day interest penalty when settling, if fixed rate then an actuarial rate will be used to calculate a settlement figure, this will be more than a Variable rate settlement figure. Finally in order to qualify for a LIBOR 3 month rate you need to prove High Net Worth, this would mean having a NET income of more than £150k or NET Assets excluding residential home of more than £500k, both these have to be verified by a certified accountant.

Finally, there are no voluntary terminations available with the fixed rate HIGH NET WORTH or the VARIABLE RATE agreements. By proving high net worth you are voluntarily opting to have an agreement outside of the rules of the Consumer Credit Act which then means you are unable to take advantage of Voluntary Terminations or Handbacks.

Its a mine field when trying to finance high priced vehicles. Some lenders are very strict on criterea and are very strict on Balloon payment plans. Good luck, I hope this info was of use to you

Why are they basing LIBOR off base and not LIBOR?

[Mr Car Finance]

Sorry Noel to clarify.....I am not a great explainer at times. When referring to the 3% LIBOR over base, what I meant to convey was that ING Base their LIBOR rate at 3% over current LIBOR rate (0.7%). Lombard do have the option to use LIBOR 1 day, LIBOR 1 Month, LIBOR 3 Month and LIBOR 6 Month in the basket or rates depending on what they are funding. ie Cars or Equipment. I use base rate as a general term for the lowest currently available.

Apologies for the confusion and thanks for bringing it to my attention

Kind regards

[Phooey]

Mr Car Finance said:

If it is of any use...here is the following...ING have currently set their 3 Month LIBOR Rate at 3% over base, this is considerably higher than the 0.3-0.5% currently being used by other lenders...ie Lombard. Should you go full term on a LIBOR rate with Lombard and the LIBOR rate increases during the term of the agreement then the final term may extend by a month or two to cope with the variation in LIBOR rate at final term compared with LIBOR starting rate relating to total interest paid.

With ING setting a sensible if not slightly higher LIBOR Rate you are better off and better covered. It may be the case that you are probably paying slightly more interest each month but towards the end of the contract your final payment or end date may be shorter due to more interst being paid over the term based on the higher LIBOR Rate over the full term.

With Variable rate loans by rule of thumb there is outstanding Capital plus a 30 day interest penalty when settling, if fixed rate then an actuarial rate will be used to calculate a settlement figure, this will be more than a Variable rate settlement figure. Finally in order to qualify for a LIBOR 3 month rate you need to prove High Net Worth, this would mean having a NET income of more than £150k or NET Assets excluding residential home of more than £500k, both these have to be verified by a certified accountant.

Finally, there are no voluntary terminations available with the fixed rate HIGH NET WORTH or the VARIABLE RATE agreements. By proving high net worth you are voluntarily opting to have an agreement outside of the rules of the Consumer Credit Act which then means you are unable to take advantage of Voluntary Terminations or Handbacks.

Its a mine field when trying to finance high priced vehicles. Some lenders are very strict on criterea and are very strict on Balloon payment plans. Good luck, I hope this info was of use to you

Thanks for taking the time to write this Richard - i will bear the facts in mind should i decide to finance my next vehicle.

[marky1]

Mr Car Finance said:

Sorry Noel to clarify.....I am not a great explainer at times. When referring to the 3% LIBOR over base, what I meant to convey was that ING Base their LIBOR rate at 3% over current LIBOR rate (0.7%). Lombard do have the option to use LIBOR 1 day, LIBOR 1 Month, LIBOR 3 Month and LIBOR 6 Month in the basket or rates depending on what they are funding. ie Cars or Equipment. I use base rate as a general term for the lowest currently available.

Apologies for the confusion and thanks for bringing it to my attention

Kind regards

So you mean the rate they charge is LIBOR + 3%

[iestyn30]

marky1 said:

So you mean the rate they charge is LIBOR + 3%

Yes, they will be charging 3% over LIBOR which, 3 month LIBOR is currently 0.61% so a gross APR of 3.61%. Most banks will be lending over 3 month LIBOR (although you can get 1 month, 6 month, 12 month etc) but if you asked the car finance guy questions at this level of detail he will probably not know.

Personally I would recommend borrowing over LIBOR (variable rate) as it gives much more flexibility when you come to change the car. Fixed rate deals are likely to give a minimum apr of 7% at present so if your getting 3.61% thats a very good deal. Can I ask, will this be in your personal name or business?

Good luck, whats the car?

[levron73]

So I'm just looking at this as well. I have been offered what looks like a good deal. It is based on base rate + 1 month LIBOR. BUT and here's the but the actual rate that the loan is calculated on is 3%. They are saying that the advantage is that I actually over pay by buy a small amount each month which I guess is the difference between the 3% and the LIBOR rate. The net effect is that it will lower the actual balloon at the end of the term.

So the deal I currently have is;

Car = £35,000
Deposit = £18,500
Balloon = £12,000
Monthly Payment (36)=£232

So unless the LIBOR goes to 3% I am "paying back" against the balloon and thus lowering it - currently it looks like an overpayment of £25 per month so in total £900 making the actual balloon £11,100.

Now I tend not to keep my cars for 36 months hence the flexibility to either overpay or end the agreement is attractive - the risk is if the LIBOR was to go OVER 3% within 3 years - that is the only risk that I can see?

Have I got this right? Seems like a good deal - actually just re done it and it looks like 10% APR?

Now confused!

[iestyn30]

levron73 said:

So I'm just looking at this as well. I have been offered what looks like a good deal. It is based on base rate + 1 month LIBOR. BUT and here's the but the actual rate that the loan is calculated on is 3%. They are saying that the advantage is that I actually over pay by buy a small amount each month which I guess is the difference between the 3% and the LIBOR rate. The net effect is that it will lower the actual balloon at the end of the term.

So the deal I currently have is;

Car = £35,000
Deposit = £18,500
Balloon = £12,000
Monthly Payment (36)=£232

So unless the LIBOR goes to 3% I am "paying back" against the balloon and thus lowering it - currently it looks like an overpayment of £25 per month so in total £900 making the actual balloon £11,100.

Now I tend not to keep my cars for 36 months hence the flexibility to either overpay or end the agreement is attractive - the risk is if the LIBOR was to go OVER 3% within 3 years - that is the only risk that I can see?

Have I got this right? Seems like a good deal - actually just re done it and it looks like 10% APR?

Now confused!

Hi Levron, afraid you are right second time around. Its 9.11% excluding any fee's which will take the apr up.

It sounds like there is a bit of confusion here. Base rate 0.5% (bank of england base rate) is different to LIBOR rate and one cannot be lent over the other. Chances are they are saying they can price it at 3% over LIBOR but this would make the gross apr 3.61%(ish). On any variable rate loan you can make over payments and settle early with little or no penalty which will give the flexibility if you're not keeping the car for the full term.

I assume you will be buying the car in your own personal name as opposed to a business name!? If this is the case the the deal will be regulated and the documents will tell you the exact APR however you might not want to get to the stage of signing doc's before you know the real apr. It may be the sales guy is spinning a line to get you hooked or just confusion somewhere. Just ask a few more Q's if I were you.

Hope this helps

[marky1]

I'm not looking for anything, was just clarifying for people as it was a bit confusing how it was written.

Edited by marky1 on Tuesday 21st September 19:53

[levron73]

I have a discussion with them 1st thing tomorrow to clarify how it is calculated as I'm totally confused.

The discussed a 3% flat rate - which to be fair I would be happy with as it equates to about 6% to 6.5% APR - the whole discussion came about as the finance I was 1st quoted was £253 per month on a 36 month term - which sounded very good - then suddenly this was only available on a 48 month term. When I did the maths on a 3% flat I could get to the £253 on 36 months hence why I am questioning their calculations!

[Old Trout]

iestyn30 said:

levron73 said:

So I'm just looking at this as well. I have been offered what looks like a good deal. It is based on base rate + 1 month LIBOR. BUT and here's the but the actual rate that the loan is calculated on is 3%. They are saying that the advantage is that I actually over pay by buy a small amount each month which I guess is the difference between the 3% and the LIBOR rate. The net effect is that it will lower the actual balloon at the end of the term.

So the deal I currently have is;

Car = £35,000
Deposit = £18,500
Balloon = £12,000
Monthly Payment (36)=£232

So unless the LIBOR goes to 3% I am "paying back" against the balloon and thus lowering it - currently it looks like an overpayment of £25 per month so in total £900 making the actual balloon £11,100.

Now I tend not to keep my cars for 36 months hence the flexibility to either overpay or end the agreement is attractive - the risk is if the LIBOR was to go OVER 3% within 3 years - that is the only risk that I can see?

Have I got this right? Seems like a good deal - actually just re done it and it looks like 10% APR?

Now confused!

Hi Levron, afraid you are right second time around. Its 9.11% excluding any fee's which will take the apr up.

It sounds like there is a bit of confusion here. Base rate 0.5% (bank of england base rate) is different to LIBOR rate and one cannot be lent over the other. Chances are they are saying they can price it at 3% over LIBOR but this would make the gross apr 3.61%(ish). On any variable rate loan you can make over payments and settle early with little or no penalty which will give the flexibility if you're not keeping the car for the full term.

I assume you will be buying the car in your own personal name as opposed to a business name!? If this is the case the the deal will be regulated and the documents will tell you the exact APR however you might not want to get to the stage of signing doc's before you know the real apr. It may be the sales guy is spinning a line to get you hooked or just confusion somewhere. Just ask a few more Q's if I were you.

Hope this helps

Variable rate LIBOR deals are only available outside of the CCA and so are not regulated.