- 6 March 2014 at 9:26 am #22751
I’m wondering if someone can confirm exactly how the total interest charged on a PCP loan is calculated – specifically how the balloon payment is treated. Is this part calculated separately from the monthly payments?
I have a quote for a new BMW and (being a nerd) I like to chuck figures into excel to check they tally and have a better feel for the total cost over the term of the loan. I can’t quite get the total interest charged figure to match. I’m close by out a little.
The figures are:
Balance to finance = £28,720.09
Monthly payments of £450
balloon = £11,440.81
Total interest (as calculated on the quote) = £3,860.72
When I create a payments schedule (i.e. a running balance over the entire 47 months of payments at £450) my total interest matches the dealer spot on but this EXCLUDES the balloon payment. I’m wondering whether the figure of £11,440.81 payable in 47 months time already has interest included?
when I try and do the same calculation outright I get lower interest charges even if I split this into two parts – the monthly payments and the balloon
Any help greatly appreciated. I’m confident the dealer numbers are correct but its bugging me that I can’t consolidate them
- 6 March 2014 at 9:35 am #22752
I.E. Do I need to present value the balloon payment to today to work out the interest that builds towards the future value (in 47 months) of £11,440.81? This gets me close
PV of £11,440.81 i make to be £9,446.66 meaning that £1,994.15 is the interest charged on the balloon payment
If I add that to the interest on the remaining £17,279.28 (Balance to finance less the balloon) which I make to be £1,746.24 I get to a total of £3,740.39 – about £120 out
- 6 March 2014 at 11:27 am #22754
Are there any fees you may have missed? There are usually an admin fee on your first payment and another at the end.
- 6 March 2014 at 11:31 am #22755
You pay interest over the entire sum financed, which you have said is £3,860 on a borrowing of £28,720. So yes, there is an interest component in the balloon just as there is in every monthly payment.
- 6 March 2014 at 11:40 am #22756
Thanks Stuart – I think I have it bang on now. I think the small difference is explained by a small rounding in the compound monthly effective interest rate, when converted from the advertised 4.9% APR.
- 6 March 2014 at 12:12 pm #22757
The finance company should be able to tell you the fixed interest rate, if that helps.
- 1 April 2014 at 6:02 am #26138
Apologies “Deleted User”, my latest attempt at anti-spamming seems to have removed you from existence. Sorry!