Discussion
Firstly, dealers offer HP (Hire-Purchase) on both new and used.
Without a sum to be borrowed and repayment term, it's difficult to give exact numbers for repayments. Also there are optional features like payment protection, gap insurance, etc., that can be added. Bank websites can give you a quote for a given sum over a given period of time, so you can get an idea of the basic cost of borrowing (excluding any gap insurance or other products you may choose to add).
Below are a couple of points that I've learned from my experience of getting finance in the past.
It can be helpful to get a bank loan quote to assist in negotiating the rate with the dealer, as you should always try to haggle for the best rate with the finance guy.
Make sure that when the finance guy is talking about percentage rates, it's the same type of rate as you've got from the bank. Banks generally quote APR, god knows what the dealers talk about but it always seems to be a lower percentage rate but results in higher repayments! I think they're legally required to quote APR prior to signing the deal, but just bear in mind that not all percentage rates mean the same thing. The acid test is what the monthly payments will be, and whether they're acceptable to you.
Without a sum to be borrowed and repayment term, it's difficult to give exact numbers for repayments. Also there are optional features like payment protection, gap insurance, etc., that can be added. Bank websites can give you a quote for a given sum over a given period of time, so you can get an idea of the basic cost of borrowing (excluding any gap insurance or other products you may choose to add).
Below are a couple of points that I've learned from my experience of getting finance in the past.
It can be helpful to get a bank loan quote to assist in negotiating the rate with the dealer, as you should always try to haggle for the best rate with the finance guy.
Make sure that when the finance guy is talking about percentage rates, it's the same type of rate as you've got from the bank. Banks generally quote APR, god knows what the dealers talk about but it always seems to be a lower percentage rate but results in higher repayments! I think they're legally required to quote APR prior to signing the deal, but just bear in mind that not all percentage rates mean the same thing. The acid test is what the monthly payments will be, and whether they're acceptable to you.
A few tips on finance
You need to find out what the flat rate is, as this determines your repayments. As a guide, the flat rate is approx half the APR quoted. So if APR is 9.9% the flat rate is 4.95%.
Generally you should be looking for a flat rate of less than 4%, on a basic repayment, no balloon type deal, I doubt you’ll get much better than that from a dealer. You may get better deals if you do a balloon type deal, that is have a large balance to pay off at the final payment.
Personally I’d avoid balloons, they add confusion, and therefore can leave you exposed, also, a 36 month with balloon payment, can usually be beaten by a 60 month deal.
Some sneaky tricks to look out for – High Pence – ing. This is where you say to the finance guy, I can afford £150 per month, and he does you a deal at £150.88, the 88p being a number apparently researched, that people don’t quibble with. In essence over 5 years you end up paying nearly £50 more.
To work out how much your finance will cost you, here is an example.
Loan amount £30,000 ( difference between P/x and RRP of your car) – remember to get at least 5% off RRP.
Say you want the balance over 60 months, and they’ve offered you 4% flat rate.
Therefore
4% per year = 5 x 4 = 20%
30,000 + 20% = 36000 / 60 = £600 per month
Therefore if you told the finance guy you’re looking for a deal at £600, then my guess is that his first offer would be around £630.88 – he’ll automatically include supagard, gap insurance etc. So you need to strip those out of the deal.
They will also include sing on and sign off fees normally about £50 each, so your first and last payments are more expensive than the rest. Every finance guy I’ve met tells you that these are not negotiable…
Remember also, that if you decide to repay the loan early, you don’t pay the interest on the balance - or at least you don’t pay all the interest.
hth
You need to find out what the flat rate is, as this determines your repayments. As a guide, the flat rate is approx half the APR quoted. So if APR is 9.9% the flat rate is 4.95%.
Generally you should be looking for a flat rate of less than 4%, on a basic repayment, no balloon type deal, I doubt you’ll get much better than that from a dealer. You may get better deals if you do a balloon type deal, that is have a large balance to pay off at the final payment.
Personally I’d avoid balloons, they add confusion, and therefore can leave you exposed, also, a 36 month with balloon payment, can usually be beaten by a 60 month deal.
Some sneaky tricks to look out for – High Pence – ing. This is where you say to the finance guy, I can afford £150 per month, and he does you a deal at £150.88, the 88p being a number apparently researched, that people don’t quibble with. In essence over 5 years you end up paying nearly £50 more.
To work out how much your finance will cost you, here is an example.
Loan amount £30,000 ( difference between P/x and RRP of your car) – remember to get at least 5% off RRP.
Say you want the balance over 60 months, and they’ve offered you 4% flat rate.
Therefore
4% per year = 5 x 4 = 20%
30,000 + 20% = 36000 / 60 = £600 per month
Therefore if you told the finance guy you’re looking for a deal at £600, then my guess is that his first offer would be around £630.88 – he’ll automatically include supagard, gap insurance etc. So you need to strip those out of the deal.
They will also include sing on and sign off fees normally about £50 each, so your first and last payments are more expensive than the rest. Every finance guy I’ve met tells you that these are not negotiable…
Remember also, that if you decide to repay the loan early, you don’t pay the interest on the balance - or at least you don’t pay all the interest.
hth
Edited by stockhatcher on Tuesday 5th September 10:04
Edited by stockhatcher on Tuesday 5th September 10:05
In my experience of finance (which isnt that much, but I have a little) the dealer will always quote a interest percentage that does not include the bank of england base rate. So if he says 3.5% flat rate, you need to add the base rate of interest on to that percentage he has given you. I think this is correct.
stockhatcher said:
Personally I’d avoid balloons, they add confusion, and therefore can leave you exposed
Hear hear. Besides which, it's generally hard to realise that kind of cash at the end of the repayment period, unless you're scheduled to win the lottery! stockhatcher said:
They will also include sing on and sign off fees normally about £50 each, so your first and last payments are more expensive than the rest. Every finance guy I’ve met tells you that these are not negotiable…
IIRC BMW's "acceptance" fee is £150, and the option to buy fee at the end is £50. stockhatcher said:
Remember also, that if you decide to repay the loan early, you don’t pay the interest on the balance - or at least you don’t pay all the interest.
In my experience it's always been the remaining capital plus one month's interest, which is pretty good really.panthro said:
In my experience of finance (which isnt that much, but I have a little) the dealer will always quote a interest percentage that does not include the bank of england base rate. So if he says 3.5% flat rate, you need to add the base rate of interest on to that percentage he has given you. I think this is correct.
Any dealer who does that is committing an offence.How to calculate repayments on a HP. ie NO balloon payment.
£10,000 borrowed at 4% flat over 3 years.
Total Loan = 10,000
Interest over the 3 years is 10,000 times 4% times 3 = 1200
Amount borrowed = 11,200
There will be 36 repayments of 11,200 / 36
Monthly repayment = £311.11
As a previous poster said, the APR on this deal will work out at about twice the flat rate, about 8%. The actual apr will depend on the additionl charges for documentation, release fee etc. The ONLY way to compare actual cost of loan is to look at the APR figures.
edited to say: all this has already been posted - I should read all the stuff first!
£10,000 borrowed at 4% flat over 3 years.
Total Loan = 10,000
Interest over the 3 years is 10,000 times 4% times 3 = 1200
Amount borrowed = 11,200
There will be 36 repayments of 11,200 / 36
Monthly repayment = £311.11
As a previous poster said, the APR on this deal will work out at about twice the flat rate, about 8%. The actual apr will depend on the additionl charges for documentation, release fee etc. The ONLY way to compare actual cost of loan is to look at the APR figures.
edited to say: all this has already been posted - I should read all the stuff first!
Edited by Paul Drawmer on Tuesday 5th September 12:17
Paul Drawmer said:
How to calculate repayments on a HP. ie NO balloon payment.
£10,000 borrowed at 4% flat over 3 years.
Total Loan = 10,000
Interest over the 3 years is 10,000 times 4% times 3 = 1200
Amount borrowed = 11,200
There will be 36 repayments of 11,200 / 36
Monthly repayment = £311.11
As a previous poster said, the APR on this deal will work out at about twice the flat rate, about 8%. The actual apr will depend on the additionl charges for documentation, release fee etc. The ONLY way to compare actual cost of loan is to look at the APR figures.
edited to say: all this has already been posted - I should read all the stuff first!
that can't be right as teh outstanding balance reduces monthly (albeit by small amounts at first), so the amount on which the 4% is calculated reduces, even if it is only reset annually.£10,000 borrowed at 4% flat over 3 years.
Total Loan = 10,000
Interest over the 3 years is 10,000 times 4% times 3 = 1200
Amount borrowed = 11,200
There will be 36 repayments of 11,200 / 36
Monthly repayment = £311.11
As a previous poster said, the APR on this deal will work out at about twice the flat rate, about 8%. The actual apr will depend on the additionl charges for documentation, release fee etc. The ONLY way to compare actual cost of loan is to look at the APR figures.
edited to say: all this has already been posted - I should read all the stuff first!
Edited by Paul Drawmer on Tuesday 5th September 12:17
So the key difference between finance and a loan, appart from the rates applied, would be that a personal loan takes in to account the reduction in outstanding money over the term in calculating your payments, whereas finance takes x% of the loan value x however many years you go for?
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