Personal Loan vs HP Loan

[sansnom]

Guys,

Can anyone make heads or tails of the rates dealerships offer for car financing? I am totally confused.

If I take a 15k loan from my bank as a personal loan, I have a 3.0% APR and owe a total of 1,155.60 after 5 years. If i settle this early, the settlement value is far less.

Speaking to BMW, the hire purchase rate is 6.9% APR. BMW is telling me the flat rate is 3.59% but my actual monthly repayment is equivalent to 6.9%. The finance manager is insisting the rate they are offering is only 0.59% more expensive than my Bank which is obviously not the case as the actual monthly repayments are reflecting a 3.0% rate and a 6.9% rate respectively.

Am I missing something here or is BMW more than twice as expensive if I decide to finance through them? Their Hire Purchase breakdown does show a significant "rebate" when i settle the loan early but the monthly payments are definitely reflecting 6.9% not 3.59%

 

[Joe T]

Correct, BMW are twice as expensive when looking at the rates. The BMW salesman is trying to get one past you by mixing up flat rate and APR.

 

[glenimp617]

BMW can get that rate down if you haggle. They'll say they can't, but they can.

or you go to the bank at 3%

 

[muon]

If the salesperson is saying that, then that is very serious misselling.

You always compare APR to APR, unless you know the proper Maths to compare different types of interest rates.

This is only an approximation, but for a full repayment loan, the APR interest rate is double the simple interest rate. So the simple interest rate for your bank loan is 1.5%.

 

[sansnom]

If the salesperson is saying that, then that is very serious misselling.

You always compare APR to APR, unless you know the proper Maths to compare different types of interest rates.

So just to be 100% clear before I get back on the phone with BMW and reject their offer:

Santander personal loan: 3.0% APR (with up to 50 days interest penalty on early settlement) is better than BMW's offer of 6.9% APR (with no penalty on early settlement). The way the BMW finance manager explained it to me was you calculate the monthly payment like this:

(15,000 x 3.59% x 5 years) + Loan amount (15,000) divided by 60 months = 295 per month payment.

Santander calculator for the same loan works out to 269 per month payment.

I just want to make sure I am comparing apples to apples

 

[muon]

So just to be 100% clear before I get back on the phone with BMW and reject their offer:

Santander personal loan: 3.0% APR (with up to 50 days interest penalty on early settlement) is better than BMW's offer of 6.9% APR (with no penalty on early settlement). The way the BMW finance manager explained it to me was you calculate the monthly payment like this:

(15,000 x 3.59% x 5 years) + Loan amount (15,000) divided by 60 months = 295 per month payment.

Santander calculator for the same loan works out to 269 per month payment.

I just want to make sure I am comparing apples to apples

Correct

 

[rodenal]

There is no dubiety here, you are doning the right thing by comparing total amount to be paid, stick it into an online calculator if you are not sure

The constant misrepresentation of Apr by the motor trade infuriates me

 

[Jonny ///M]

Sounds about right for the car trade, I kept getting flat rate prices which sound good until you pretty much double it for the APR.

Looks like you'd be paying an extra £978 going with the BMW offer.

 

[sansnom]

Guys thanks this has been really helpful.

One final question - when determining my actual cost at the end of the period where I intend to settle the loan and/or sell the car, BMW are able to show me what the final settlement is with the rebate for settling early. Santander cannot do this until I actually have a loan with them (for some bizarre reason).

How can i determine what the final settlement will be for my Santander loan by settling early? I have looked online and i cannot find any calculators that do this for me. I found one by googling 'early settlement actuarial calculator' but the early settlement figure is incorrect as I compared it with what BMW finance shows and it is totally different even using the same rate. If I know what the formula is I can figure it out myself but right now I do not know how they calculate the rebate at early settlement and the BMW finance manager was unable to explain it.

 

[muon]

Guys thanks this has been really helpful.

One final question - when determining my actual cost at the end of the period where I intend to settle the loan and/or sell the car, BMW are able to show me what the final settlement is with the rebate for settling early. Santander cannot do this until I actually have a loan with them (for some bizarre reason).

How can i determine what the final settlement will be for my Santander loan by settling early? I have looked online and i cannot find any calculators that do this for me. I found one by googling 'early settlement actuarial calculator' but the early settlement figure is incorrect as I compared it with what BMW finance shows and it is totally different even using the same rate. If I know what the formula is I can figure it out myself but right now I do not know how they calculate the rebate at early settlement and the BMW finance manager was unable to explain it.

It is the outstanding amount plus 50 days interest. So 50 days interest will with differ how far along the loan you are as it will go down. It doesn't work via a rebate.

At the beginning it is 15000 x (1.030^(50/365)).

As the amount outstanding goes down, so does the settlement amount.

I wouldn't worry about that bit.

 

[sansnom]

It is the outstanding amount plus 50 days interest. So 50 days interest will differ how far along the loan you are as it will go down. It doesn't work via a rebate.

At the beginning it is 15000 x (1.030^(50/365)).

As the amount outstanding goes down, so does the settlement amount.

Yep understand that, but I meant the loan is front loaded with interest payments (because it is a fixed payment every month) so when you settle early, you will always get a rebate back from the lender because you have been overcharged for interest in the earlier months. What I don't know how to calculate is what that rebate of overpaid interest would be if you settled say at 2 years into a 5 year loan

 

[muon]

Yep understand that, but I meant the loan is front loaded with interest payments (because it is a fixed payment every month) so when you settle early, you will always get a rebate back from the lender because you have been overcharged for interest in the earlier months. What I don't know how to calculate is what that rebate of overpaid interest would be if you settled say at 2 years into a 5 year loan

In a normal loan the interest isn't front loaded (even if payments are fixed). Think of it like a mortgage.

 

[200sols]

Ive used this calculator in the past if it’s any good. http://www.financecalcs.co.uk/Calcs/Settlement.php

 

[sansnom]

In a normal loan the interest isn't front loaded (even if payments are fixed). Think of it like a mortgage.

Gotcha, thanks!

Ive used this calculator in the past if it’s any good. http://www.financecalcs.co.uk/Calcs/Settlement.php

Thanks! This one seems to tie in with what BMW quote said would be the settlement post rebate so I'll use that to estimate.

Out of curiosity, has anyone come across a better personal loan offer than Santander which is 3.0% per annum with 50 days interest penalty on early settlement?

Ideally, either no penalty or lower rate. Don't mind who the lender is.

 

[Thekwango]

Thanks! This one seems to tie in with what BMW quote said would be the settlement post rebate so I'll use that to estimate.

Out of curiosity, has anyone come across a better personal loan offer than Santander which is 3.0% per annum with 50 days interest penalty on early settlement?

Ideally, either no penalty or lower rate. Don't mind who the lender is.

checked with whoever you bank with. sometimes your own bank can offer superior loan rates.

 

[kindai]

Out of curiosity, has anyone come across a better personal loan offer than Santander which is 3.0% per annum with 50 days interest penalty on early settlement?

3% APR must be one of the best offers out there! Go with it!

 

[sansnom]

3% APR must be one of the best offers out there! Go with it!

Rightio, thanks!

checked with whoever you bank with. sometimes your own bank can offer superior loan rates.

That was with my bank (santander). Thanks !

 

[Jonny ///M]

I'd say 3% is pretty good.

Tesco were offering 2.95% on 10k for myself and i think could go for 15k or 25k max.

My own bank BoS were 15.9%

Edit: 3% or 2.9595% nominal whatever that means.

 

[Hades]

A few months ago M&S were doing 2.8% APR up to £20k with 30 days interest penalty for early repayment. That might be worth checking to see if they still have it.

 

[Gibbo]

It is always total amount paid back you need to be interested in!

You won’t better that bank loan really and the bank loan is way more flexible with over payment options.

I found this out when I rang to pay a lump sum of my car finance to be told I can’t reduce the balloon or term only the monthly payment, which annoyed me. Of course they do this to make sure they make the most interest.

Anyway I got my own back by simply asking to settle in full and they did not seem to like it at all but it just means next time I will probably avoid that particular company for my next car as I’m told some finance companies will let you over pay and give you option of reducing term, final balloon or monthly amount, whereas mine was only latter. They would not even accept credit card but I’ll be using debit card.

So bank loan all the way you save money and it’s more flexible with over payments.