PCP interest calculation

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This topic contains 6 replies, has 2 voices, and was last updated by Stuart Masson Stuart Masson 5 years ago.

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  • #22751 Reply

    Hi Forum,

    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
    47 months
    4.9% APR
    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

    Thanks

  • #22752 Reply

    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

  • #22754 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Are there any fees you may have missed? There are usually an admin fee on your first payment and another at the end.

  • #22755 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    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.

  • #22756 Reply

    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.

  • #22757 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    The finance company should be able to tell you the fixed interest rate, if that helps.

  • #26138 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

    Apologies “Deleted User”, my latest attempt at anti-spamming seems to have removed you from existence. Sorry!

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