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PCP interest calculation

Home Forums Car finance 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, 2 months ago.

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  • #22751 Reply
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    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
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    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.

    Editor, TheCarExpert.co.uk and

  • #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.

    Editor, TheCarExpert.co.uk and

  • #22756 Reply
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    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.

    Editor, TheCarExpert.co.uk and

  • #26138 Reply
    Stuart Masson
    Stuart Masson
    Keymaster

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

    Editor, TheCarExpert.co.uk and

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