[gIzzE]

Originally Posted by NFS

You might consider that to be a penalty as you have been charged 74% of the interest when the loan term has been reduced by 50%. However, when you consider that, as you correctly say, interest is calculated each month on the amount owed, it is actually perfectly fair.

Yeah it does work out pretty fair if you see that far into the term. But also their rates at the moment are really poor as well, which makes it not good for someone who wants to get out half way through a term.

A lease by its very nature charges interest monthly, but to keep the monthly payments the same it is averaged over the full term.

So say you borrow £12k over 12 months at 10% apr.
The total borrowed is £12631.
£1052 a month.

So month one is £12000 less £1052 = £10948 balance + the interest for the month on the £12k you owed them, which is £100. Meaning your balance for that month after payment reads £11948.

By the time you get to month 12 you are only paying interest on the £1000.

Now if BMW give you a flat rate on a lease purchase too (they weren't last year it was apr).
Then you are paying 5.5% each month on the full £12k.
So every month £55 is interest.

As you can see, if you get passed the half way point then flat rate or pcp or whatever no longer seems to be such a pain. It is more the wrong way to do it for people who know they may only be in a car for 6 to 12 months.

[gIzzE]

Originally Posted by NFS

I bought my previous car via HP over 4 years and the interest applied in the settlement figures works as follows:

1. After 12 months - 48% of total interest
2. After 24 months - 74% of total interest
3. After 36 months - 95% of total interest

The settlement figures for my current lease purchase deal work the same way.

Let's say we exaggerate the figures a bit.

Say you buy that nice fully loaded 760iL for £100,000 over 48 months.

PCP at 5.5% flat.

£100k + 5.5% flat over 4 years = £122000 to repay.
£2541 a month

£69508 + 48% of interest =

£80014 to get out.




Lease payments with apr of 6.5%

£100,000 borrowed repayments of £2320 a month
After 12 months you would owe £74,000.
So 10% a month cheaper and you owe £6k less after 12 months.

So not ridiculous amounts of difference but a difference.

[NFS]

Originally Posted by gIzzE

Now if BMW give you a flat rate on a lease purchase too (they weren't last year it was apr).

Flat Rate is just a way of expressing interest. You can quote any loan in terms of it's Flat Rate or APR. It's like quoting a distance in metres or feet.

Same concept - different units.

http://www.moneysavingexpert.com/loa...te-loan-danger

It doesn't make any difference to the early settlement costs if a loan is quoted in terms of the 'flat rate' or the 'APR'.

[NFS]

Originally Posted by gIzzE

Let's say we exaggerate the figures a bit.

Say you buy that nice fully loaded 760iL for £100,000 over 48 months.

PCP at 5.5% flat.

£100k + 5.5% flat over 4 years = £122000 to repay.
£2541 a month

£69508 + 48% of interest =

£80014 to get out.

Lease payments with apr of 6.5%

£100,000 borrowed repayments of £2320 a month
After 12 months you would owe £74,000.
So 10% a month cheaper and you owe £6k less after 12 months.

So not ridiculous amounts of difference but a difference.

A flat rate of 5.5% is equivalent to an APR of around 11%. That's why it would be more expensive than a loan at 6.5% APR. Both at the end of the term and at early settlement.

Over 48 months the interest charges on a £100K loan at a flat rate of 5.5% would be £22,853.37

If the loan was at an APR of 6.5% the interest charge would be £13,420.53

So if you take an early settlement after 12 months, using the BMW figures you would pay 48% of the interest. For the 5.5% flat loan the total cost would be £110,969.618 and for the 6.5% APR loan the total cost would be £106,355.45. The principles are the same in each case, only the rate changes.

[gIzzE]

Originally Posted by NFS

Flat Rate is just a way of expressing interest. You can quote any loan in terms of it's Flat Rate or APR. It's like quoting a distance in metres or feet.

Same concept - different units.

http://www.moneysavingexpert.com/loa...te-loan-danger

It doesn't make any difference to the early settlement costs if a loan is quoted in terms of the 'flat rate' or the 'APR'.

Whoa!! Hold on, apr and flat rate are two completely different ways of calculating interest.

APR is always calculated at the arranged percentage on the remaining amount of money borrowed.

Flat rate is exactly that, a flat percentage rate on the initial amount borrowed.
So if you borrow £100k over 60 months you pay the 5.5% rate in year 1 on the £100k and you pay 5.5% on £100k even in year 5 when you only owe £20k.

[gIzzE]

Originally Posted by NFS

A flat rate of 5.5% is equivalent to an APR of around 11%. That's why it would be more expensive than a loan at 6.5% APR. Both at the end of the term and at early settlement.

Over 48 months the interest charges on a £100K loan at a flat rate of 5.5% would be £22,853.37

If the loan was at an APR of 6.5% the interest charge would be £13,420.53

So if you take an early settlement after 12 months, using the BMW figures you would pay 48% of the interest. For the 5.5% flat loan the total cost would be £110,969.618 and for the 6.5% APR loan the total cost would be £106,355.45. The principles are the same in each case, only the rate changes.

Sure, but you can typically get a lease purchase for 1.5% above base rate, a flate rate is typically between 5-6%.

[CrimsonRedE93]

You are right guys there are differences between flat and APR, the best thing to do is concentrate on how much extra each one will cost you in the long run

[gIzzE]

Originally Posted by CrimsonRedE93

You are right guys there are differences between flat and APR, the best thing to do is concentrate on how much extra each one will cost you in the long run

Absolutely, and that is why I like apr based leases, you can see on your statement each month exactly how much you owe, no messing around getting settlement figures or waiting for periods like 12, 18, 24 months etc. to make sure it works out alright, you just ring up and pay it off.

[NFS]

Originally Posted by gIzzE

Whoa!! Hold on, apr and flat rate are two completely different ways of calculating interest.

It's more appropriate to think of APR and Flat Rate as two completely different ways of calculating the interest rate.

If you have a 100k loan over 48 months with a flat rate of 5% the total payable will be £120,000 and the monthly payment will be £2.5K

If you take the same loan at 9.37% APR give or take a few quid (depending on fees) the total amount payable will be £120,000 and the monthly payment will be £2.5K.

If you settle either loan early, the percentage of the total interest charge that you will need to pay will be the same.

To all intents and purposes the loans are identical and so are the interest rates. They are just calculated using different systems, so they appear different. Neither is better than the other, but car salesmen like to use the flat rate because the lower number confuses people and suggests that the loan is a better deal than it really is.

[gIzzE]

Originally Posted by NFS

To all intents and purposes the loans are identical and so are the interest rates. They are just calculated using different systems, so they appear different. Neither is better than the other, but car salesmen like to use the flat rate because the lower number confuses people and suggests that the loan is a better deal than it really is.

If you see the whole term out yes, but flat rate interest is always worked out at the start and added onto the amount borrowed and then a discount given for early settlement, the OP said that they were going to get out of a 48 month after around 24 months, you are then relying completely on the discount levels that the individual lender agrees with you.
A few years back, 2003 I think it was, we got a 12% discount for settling after 12 months of a 36 month agreement.
This meant that although we had paid 12 lots of £320, we still owed what we initially borrowed so we had to stay in the car for another 12 months, at that point we got a 38% discount and we were no longer upside down.

That was when the finance guy at BMW told me that Balanced lease payments were better if you are the sort of person who may want to swap cars earlier than agreed, it is always done as using apr so never front loaded.


I am not saying one if better than the other, just think you have to decide what sort of buyer you are, and be very careful to make sure you get settlement figures at various points of the agreement before signing on the dotted line.

[AlanQS]

Just changing tack a bit, my bank loan, being regulated, showed the total amount of interest in the loan with predicted early settlement figures quarter way through the loan, half way, and three quarters. At one quarter through the loan, you were basically charged about 55% of the total interest, at half you were charged 88% and if you settled the loan at the three quarters stage you actually paid out £200 more than if you let it run full term. 7.4% APR

I'm actually going to clear it a fifth the way through but I'll have to find out how much interest they'll take 'cos it might actually make more money investing the clearance money over the period of the loan - and just keep paying it off. Means the next car would be paid cash.

[NFS]

Originally Posted by gIzzE

If you see the whole term out yes, but flat rate interest is always worked out at the start and added onto the amount borrowed and then a discount given for early settlement

This is exactly the same with an loan where the rate is quoted as an APR. At the outset you have a known total interest cost. Early settlement is based around discounts against that total interest.

Originally Posted by gIzzE

the OP said that they were going to get out of a 48 month after around 24 months, you are then relying completely on the discount levels that the individual lender agrees with you.
A few years back, 2003 I think it was, we got a 12% discount for settling after 12 months of a 36 month agreement.
This meant that although we had paid 12 lots of £320, we still owed what we initially borrowed so we had to stay in the car for another 12 months, at that point we got a 38% discount and we were no longer upside down.

That was when the finance guy at BMW told me that Balanced lease payments were better if you are the sort of person who may want to swap cars earlier than agreed, it is always done as using apr so never front loaded.

The fact that a loan is calculated based on an APR doesn't make the interest any more or less 'front loaded'. With a BMW loan the early settlement criteria will be identical no matter if the rate is quoted as flat or APR. If you work it through the percentage discounts they use reflect the interest situation that would apply if the interest were calculated on a monthly basis. To that extent I think the BMW criteria are pretty fair and no more 'front loaded' than they should be.

A 12% discount against total interest 12 months in is pretty nasty and this very clearly illustrates the need to get the settlement terms in writing before signing the loan papers. I nearly came a cropper with my current deal in this way. My earlier HP loan was regulated like AlanQS's, so the early settlement figures had to be stated by law. My current lease purchase is unregulated and the settlement criteria are not stated on the agreement.

Fortunately BMW use the same formula for regulated and unregulated loans, so it is all as I expected. However, with another lender I could have found myself owing the total interest when settling after 12 months !

Originally Posted by gIzzE

I am not saying one if better than the other, just think you have to decide what sort of buyer you are, and be very careful to make sure you get settlement figures at various points of the agreement before signing on the dotted line.

I totally agree with you mate. Anyone entering into an agreement should insist on having written settlement figures for 1/4, 1/2 and 3/4 of the term. It's the lenders policy on interest rebates that dictates the early settlement penalty for all loans be they APR, Flat Rate, Lease Purchase or HP.

[tisme]

I suggest you look at this thread:

http://www.e90post.com/forums/showthread.php?t=109347

FWIW my finance is all organised for my new 330D M Sport which I shall be ordering soon. I am paying 6.2% APR on the loan with no penalty for early settlement.

Deal is: Offset mortgage with a £399 arrangement feel. I now have an extra £40k in my current account for the car and my mortgage has gone up by £40k.

Interest is calculated daily on the outstanding balance (net of mortgage account and current account) and added monthly. No penalty for early settlement. It is an excellent deal.

If a long lost aunt gives me £40k, then I'll just have lost the £399 fee.

[gIzzE]

Originally Posted by NFS

The fact that a loan is calculated based on an APR doesn't make the interest any more or less 'front loaded'. With a BMW loan the early settlement criteria will be identical no matter if the rate is quoted as flat or APR.

We are looking at two different things here though, type of deal and type of interest rate, a falt rate will always be front loaded by its very nature
Rate agreed x amount borrowed x years borrowed over = amount repayable.
A lease deal with it not being front loaded can only ever be done with apr.

So as you say above, look into the figures and terms before you sign away and don't listen to what the sales guy tells you as they do lie to get you to sign, so get it in writing.

[NFS]

Originally Posted by gIzzE

We are looking at two different things here though, type of deal and type of interest rate, a falt rate will always be front loaded by its very nature

If you compare 2 BMW Finance HP loans - one at 5.5% Flat and one at 9.3% APR - the total amount payable will be the same. This will be the case both for the full term and for early settlement.

For any loan - flat rate or APR - the total interest is calculated upfront. The amount you pay on early settlement will be based on a percentage deduction against that total interest. In the case of BMW Finance the percentage deductions reflect the reality of monthly calculated interest.

A lease PURCHASE deal could be quoted as either APR or Flat Rate. It doesn't change the reality that it's HP with a balloon and it doesn't affect the cost of early settlement. It's the loan companies policy on valuing early settlements that matters.

So as you say above, look into the figures and terms before you sign away and don't listen to what the sales guy tells you as they do lie to get you to sign, so get it in writing.

I totally agree with this. Anyone entering a loan agreement should ask for written examples of early settlement costs at 1/4, 1/2 and 3/4 of the way through the term.

[gIzzE]

Originally Posted by NFS

If you compare 2 BMW Finance HP loans - one at 5.5% Flat and one at 9.3% APR - the total amount payable will be the same. This will be the case both for the full term and for early settlement.

With BMW at the moment yes, but their early settlement percentages change and you could find that you end up in a better position in the future or worse.

Originally Posted by NFS

For any loan - flat rate or APR - the total interest is calculated upfront. The amount you pay on early settlement will be based on a percentage deduction against that total interest.

No sorry, that is completely wrong.
With any loan they will usually tell you what the total interest is up front if you see teh whole term out, but it is not always front loaded.
The lender may choose to front load it, but any decent broker will always put you into a loan that you pay interest on each month.

Now for convenience and to keep the monthly payments the same they work out the amount of interest before hand and divide it by th amount of payments it is over so you are charged a set rate each month, but interest is still calculated at the end of each month, so, like your mortgage as you go through the agreement the capitol starts to become a bigger chuck of your payment month the closer you get to the end.

Originally Posted by NFS

A lease PURCHASE deal could be quoted as either APR or Flat Rate. It doesn't change the reality that it's HP with a balloon and it doesn't affect the cost of early settlement. It's the loan companies policy on valuing early settlements that matters.

The problem is APR is the only rate that tells you exactly what you are paying, flat rate is a rate devised by lenders to make it sound cheap, it doesn't actually tell you the true rate you are borrowing at as it depends on the length of term etc.

That is why I don't like it, a flat rate of 5.5% could be an apr of 5.5% or an apr of 10%, unless you sit down and do al the sums yourself you never really know.

An apr is the percentage rate at which you borrow, no ifs or buts!

[gIzzE]

Taken from the first result on google for lease purchase...

Rates explained

When you talk with us we will explain what our rates means in terms of Flat rate and APR rate.

We have heard so often from our customers that they have been offered a rate of 4%. This is assumed so often to be the rate that is paid.

This is so wrong, in terms of perception, the rate you actually pay is the APR rate, this is calculated typically over the current UK base rate.

If an APR rate is 6.75% for example, this means this is 2% over base rate.

If a rate is quoted of say 4% and APR is not mentioned, then typically you have been quoted the flat rate, which normally means that the APR rate is much higher.

When we speak with our customers and they have been offered another quotation from one of our competitors, our first question is what APR rate have you been quoted.

To our amazement – many people haven’t asked the question, which means you could be paying much more on a monthly basis than you should be.

With Saffron Asset Finance we only talk APR (Actual Percentage rate) as this is the amount you actually pay.

A flat rate also doesn't cover admin fees, where as the apr does, now some of thesefees can be quite pricey, some set up fees are £500 and some early settlemnt fees can be more than a £25 admin fee too.

From the AA buyers guide...

APR and Flat Rate
For the best comparison, look at the total you'll be repaying over the loan period.

You also need to look at the APR (annual percentage rate). The APR is calculated on the total amount you'll be paying, including interest payments and any set–up fee.

A lower APR means a better–value loan, whereas a lower flat rate might be hiding higher admin costs.

I just think for an easy life a non front loaded, apr based agreement is a lot easier.

[NFS]

Originally Posted by gIzzE

With any loan they will usually tell you what the total interest is up front if you see teh whole term out, but it is not always front loaded.
The lender may choose to front load it, but any decent broker will always put you into a loan that you pay interest on each month.

The point I am trying to make is that the type of loan (lease purchase or HP) and the way in which the interest rate is expressed (APR or Flat) does not dictate the extent to which you will pay an interest penalty on early settlement.

The key issue is the formula used by the lendor to calculate the early settlement costs. BMW finance early settlements when worked out are pretty fair. The total interest rate you will have to pay is equivalent to the cumulative amount of monthly interest charges.

Lendors can 'front load' the interest as in your example where you had to pay 88% of the total interest when ending your deal after 12 months.

That's quite unfair and it's effectively a penalty for early termination. The only way to make sure you don't end up in this trap is to request early settlement figures in writing before you sign and ensure that you are happy with them.

That is why I don't like it, a flat rate of 5.5% could be an apr of 5.5% or an apr of 10%, unless you sit down and do al the sums yourself you never really know.

You are right that flat rates should be avoided because they are difficult to compare. However, a flat rate of 5.5% is NEVER going to equate to an APR of 5.5%. At best the APR is going to be almost double the Flat Rate. It may be even higher if there are significant fees.

http://www.moneysavingexpert.com/ban...est-rates#FLAT

Originally Posted by gIzzE

A flat rate also doesn't cover admin fees, where as the apr does, now some of thesefees can be quite pricey, some set up fees are £500 and some early settlemnt fees can be more than a £25 admin fee too.

Yes that's right. With a flat rate loan admin costs are hidden. The APR factors them into the interest rate, which is why the FSA and the government consider it to be a clearer indication of the true cost of a loan.

To be clear though. With a BMW loan identical admin costs apply if the loan is quoted as Flat Rate or APR. You will have to pay them either way. So this is only ever an issue when you are trying to compare the cost of loans.

I just think for an easy life a non front loaded, apr based agreement is a lot easier.

As I keep saying. APR is no more or less 'front loaded' than a Flat Rate.

There are some very good reasons to insist that the APR of a loan is stated rather than it's Flat Rate:

1. APR factors in admin costs and fees.
2. It is more easily comparable to other loans.

However, quoting a loan as a Flat Rate or APR has absolutely no effect on the interest payable on early settlement and does not indicate 'front loading' of interest.