talizman

iTrader: (1)

I'm currently sorting out my car finance and the company are offering me 9.9% APR variable.

I've calculated this to be 5.5% flat rate which I am happy with, but does anyone know how APR is affected by the base rate?

If the base rate is soon to be 4.5%, (down from 4.75% currently) then in what way is it proportional to the APR?

If the B.O.E. base rate went up by say 1% over the next 2 years, does anyone know what effect it would have on my 9.9% APR?

Cheers

john banks

A little while since I had car finance, but is 9.9% APR competitive when a lot are paying half that on their mortgages? I got that rate in 1999 when the interest rates were much higher, and that was only the going rate at the time so I got the dealer to match it. Even worse when most car loans are front loaded on the interest.

I've previously sorted out other loans at base rate + 1% if you haggle a bit, with no ties ins etc.

Depends how flexible your finances are etc, but if I needed to raise money for a car then I would look to get it from house equity, and if I didn't have a house I would run around in a banger until I could get one.

Most car loans are fixed over the term as well IIRC. But if variable they don't have to stick to the base rate plus a percentage, they can do what they like AFAIK.

T4molie

JB,

When you say "house equity" do you mean borrowing the money against the house? Re-mortgaging?

Andy

john banks

Just a quick google search reveals 5.7% APR on £5k for 3 years
5.7% £151.11 per month, total amount £5,439.96, cost of credit £439.96.

I'm no financial adviser but I think flat rates are a way to rip people off, good job they are forced to quote the APR by law.

john banks

Our mortgage is flexible, so all the overpayments you make can be reclaimed, often quite easily, some mortgage accounts you can just ring up and it hits your current account in a few days. Otherwise you probably need to remortgage, but a lot will pay your legal fees etc. But I wouldn't depend on possibly inflated house prices to borrow to get a depreciating car. If you're going to do it anyway, you might get better rates that way though.

T4molie

ok this is starting to make more sense now

For eg I have a Fixed Rate Mortgage with the Nationwide and for the last 4.5 years I've been overpaying by £50 / month. Now I know that if I wanted I could have it so therefore using that... and so on. I believe with the Natiowide I can also get a loan with them which is linked to the mortgage so I get the same rate as that but it is no way secured against the mortgage or the house.

talizman

iTrader: (1)

John

How can Flat Rates be viewed as a way to rip people off?

Flat rate is directly proportional to the loan, whereas APR seems to be afigure pulled out of the sky.

The example you quote above is 3% flat rate, meaning that you repay 3% of the borrowed amount per year of the term of the loan.
i.e. 3% of £5000 = £150 (approx)
36 months would be £450 interest
48 months would be £600 interest and so on.

Thats set out at the start and people know what they are paying.

Car finance can be obtained for as low as 3% for brand new cars, but the older the car gets the higher rate you pay.

5.5% is competitive for what I am looking at. If I could afford a brand new car I'd be looking for nearer 3%.

I prefer car finance to loan also as you have more right in terms of halves and thirds.

john banks

Flat rates hide the charges and at a glance do not allow you to compare loans of different terms. Finance companies that like to use them also seem to use it as a smoke screen to front load the interest. I want a reducing loan balance as I go through the term with no tie ins. I want to minimise the finance company's profits by having a small difference between base and APR.

In short, the APR tells me the value for money which is more important to me than the monthly repayment. The salesman wants to fit something just above my notional monthly budget which I don't have as I prefer to live below my means and save the surplus, and if I did have a monthly budget I would not reveal it. I will be in charge of the finance and take the business elsewhere if I don't get value for money.

A flat rate is not really an interest rate, it is a multiplier used as a smokescreen to hide charges, lengthening of terms to reduce monthly repayments and front loaded interest.

As I say, I'm no expert, but I feel that these are some of the games that are going on in car sales and finance.

I don't want a finance company ever telling me again that they need to supply me a "settlement" figure that is higher than it would be paying genuine capital and interest like I had when a one year old car on three year front loaded finance was written off. The finance companies do, and they want to sell gap insurance to cover it.

Circumstances change, and the front loaded interest can never work in your favour, and is not clearly shown in agreements.

As long as these factors are taken into account no problem with whatever rate used as long as it is good VFM and fully understood?

darren...

Also don't forget to consider true flexible mortgages - Virgin 1 etc - Current account and mortgage all in one with interest calculated daily. You pay a higher rate but it's worth it (IMHO) if you deposit your money and spend it gradually over the month...

That said you do need to be someone who can control their spending.

talizman

iTrader: (1)

So I take it no one knows how much effect a base rate hike would have on my 9.9% APR?

Andrew Timmins

If the car loan is a fixed rate then no change in base rate would make any difference. Is the loan fixed or variable?

Cocker

iTrader: (3)

9.9% APR is horrendus for finance these days. You can get personal loans under 6% APR for companys like Northern Rock and Cahoot

Never look at what the flat rate is. Like been said before its garages way of thinking you have a good deal

john banks

Presumably your loan agreement will tell you talizman, and if it doesn't it is up to the lender to set their rates as they see fit? Unless you find a clause that says it is base rate plus x%, tracking or capped in some way, I think you are at their mercy.