early settlement figure for new car loan

Without a hint of irony, snipped-for-privacy@lycos.co.uk (Jack) astounded uk.finance on 12 Feb 2004 by announcing:

Well since he gets comission on the finance deal, he's going to do all he can to make you buy it.

The interest is front loaded - this is what the rule of 78s is referring to.

It is called the rule of 78s as, over a 12 month term, the interest is split into 78 equal parts (12+11+10+9+8+7+6+5+4+3+2+1). Over a 24 month period, that becomes 300 equal parts.

You will then pay 24 of these parts in the first month, 23 in the second and so on until the last month when you pay 1/300 of the total interest.

Details provided above ;-)

I'm not surprised.

Your contract for the finance was with the finance company, not the dealer. Any settlement quote from the dealer is unreliable at best and he may have forgotten about documentation fees & other fees which are usually a part of a HP agreement.

Knowing the total amount of interest would help, as would knowing the other fees.

However, this information is only likely to assist you in understanding what you've been charged. You've got absolutely no chance of anything from the finance company, and not much chance of anything from the dealer unless you can show his quote was part of your contract.

In message , Jack writes

This would indicate an APR of about 13% but there could be quite a variation depending on the assumptions made, but I reckon Ive got the scale of figure right.

I get 4792, being 2 months repayment plus two months interest for the period you borrowed plus the extra two months for paying off early.

I get it £54 in month 1.

This is almost certainly correct. I have NEVER EVER EVER EVER met anybody in the car business who has any idea whatsover about finance, interest rates, APRs, Flat Rates, repayment or anything. They will say ANYTHING top get the sale.

Complain to your local trading standards office that the Finance Broker (the dealer) misrepresented a regulated agreement.

In message , Alex writes

If you do this calc you end up with what the Car Dealer quoted. I think there are two points in this case .

and/or

Without a hint of irony, john boyle astounded uk.finance on 12 Feb 2004 by announcing:

If the full 640 is interest, that means the 3rd & 4th months' interest (the early settlement 'penalty') is 92. The first 2 months' 100 interest makes a total interest payable of 192.

So the original capital plus interest payable is 5192. 470 has been paid, leaving a balance of 4722 to pay.

This figure is just under 30 less than the OP is being asked for (4750) enhancing my belief that some of that 640 is for other fees.

You do?

Settlement figure, based on 4 months' interest payable, ought to be 90/300 x £640 + £5000 - 2 x £235 = £4722.

Lost your touch? :-)

Can't stop, must get back to my MIRAS.

In message , Alex writes

I worked it that (640*24/300)+ (640*23/300) = 100.26.

5000 - 470 + 100.26 = 4630.26

which I what the car dealer got which I why I reckoned that the car dealer had forgotten about the extra 2 months.

I agree that is a strong possibility. IAt this moment I cant find out if the rule of 78 CAN exclude extra fees in the same way that the APR MUST include all fees.

No, just doing it on a decreasing balance basis!

Dont forget the LAPR!

Without a hint of irony, john boyle astounded uk.finance on 12 Feb 2004 by announcing:

Why not?

Hmm, I think I'll stick with the bifocals.

Laser presbyopia reversal (LAPR) is a new sugical procedure which eliminates the need for reading glasses.

If you mean Life Assurance Premium Relief, that's not directly relevant.

In message , Jack writes

How much did you get off the price of the car, by doing the finance?

If it was a lot more than the cost of the finance, you are ahead.

You can be damned sure that the dealer got a hefty commission for selling the finance, and the salesman would have been highly motivated to stitch you up with something that was right for him, but not for you.

C'est La Vie, more often than not.

In message , Alex writes

Which bit are you questioning?

A) I cant see a Car Dealer really knowing how the finance co did its calculations. He seems to have based it on old assumptions, a theory which is confirmed by how his quoted figure is just 26p different from my calculation based on my assumption of his interpretation. (Car dealers never talk in pence anyway, I understand animals such as 'Pony' and 'Monkey' are their usual denominations)

B) The figures quoted by the lender seem to indicate a straightforward accrued interest method. Their figure a very adjacent to my own calcs.

Hmmm, sometimes you are just SO shortsighted.........

Without a hint of irony, john boyle astounded uk.finance on 13 Feb 2004 by announcing:

Just wondered why you don't think they're front-loading the interest.

But your calculations differ from mine and Ronald's. They also ignore the charges & other fees which were almost certainly part of the finance agreement. Unless the OP tells us exactly how much the interest was, and what the charges/fees were, we're not going to be able to come to an accurate figure.

Thanks to all for your replies - some feedback

-yes the discount i got was greater than the cost of the finance in the end (for a £500 discount I paid about £200 so I'm up £300)

-i called trading standards and they are 99% sure finance company calculated the settlement correctly

-their advice was: if it's my word against the dealership that they misrepresented the agreement I need to prove that in a small claims court. sounds difficult to do to me if it's my word agains theirs and I have no 'proof' as such in terms of written confirmation of the figure from the dealership.

Jack

It's not surprising he comes up with different results if he uses a different method.

We know that the monthly payment on £5000 is £235 for 24 months, and so we know the total interest is £640.

If the R300 applies, we know that the 1st month's interest is

But if it's a "normal" reducing balance method, then the r I get in order to make £235 = £5000*r/(1-(1+r)^-24) is 0.009869, so that'd be

Under this scheme the debt after 4 months should be £235*(1-1.009869^-20)/0.009869 = £4246.30, so a capital reduction of £753.70 would have been achieved by 4 monthly payments totalling £940.

This means 4 payments would have involved £186.30 interest, bringing the total payable to £5186.30, and since he'd have paid 2*£235, the final settlement figure should be £4716.30.

In message , Alex writes

I'm not saying that they arent. Dont forget I get you paying more interest in the early days than you do.

So what?

I agree that there may be other fees which is why I referred to making 'assumptions', but we've got enough info to calculate the APR though as any extra fees and charges are likely to be amortised into the monthly payment.

Agreed. The strange thing is though, that my rule of 78 example and my 'monthly accrual' example both agree with the figures given to the OP by the car dealer and the finance company, so I dont reckon I can be far out, do you?

Dont forget that the finance company can charge an extra 2 months interest on the debt that is outstanding as at the 22md month and does not take account of the reducing balance in months 21 and 20.

I didn't.

What months? Are you numbering them in reverse? AIUI he cancelled after month 2, and so he should have expected to pay the interest he would have paid in months 1-4 put together.

Still, I think I see what you're getting at. You're saying he'd just pay a straight penalty equal to 2 months' interest on the amount redeemed early. Fair enough. That balance would be £235*(1-1.009869^-22)/0.009869 = £4626.85, and 2 months' interest on that would be £91.32, making for a settlement figure of £4718.17.

In message , Ronald Raygun writes

Thats better. The only difference between my calc and yours is that you have calculated the exact interest rate and APR whereas I just the old addage of doubling the flat rate and adding a bit!