Calculating APR

[SpikieMikie]

Hi..

Ok, I'm not that bright so may be someone can help.... I've just got a price for a car and want to know how they work out the APR. The quote I've got goes...

Cost of car £50,695.
Less deposit £5069.50

Total to finance £45625.50
Interest charges £ 5401.05

Balance £51,026.55
Payable @ 35x £899.06
Final payment of £19,559.45
Option fee £ 295.

Total £56,391

APR 5.9%

As I say, I'm not bright but if they want to charge me 5.9% interest on my balance of £45625.50,
thats £2691.90... or if they want me to pay that a year, thats £8057.70... I don't see how they get to
£5401.05.

Even if they charge me 5.9% per year minus what I'm paying off, £10788.72 to £34836.78 ( £2055.37 )
and then £9889.66 making the interest £1471.88, that would still work out at £6219.15 !

My head hurts .....

Thanks....

[Buenchico]

I'm not that bright either but I have got a degree in maths, yet I still struggle with getting my head around APRs ;-)

The formula is quoted, under 'EuropeanUnion', here:
http://en.wikipedia.org/wiki/Annual_percentage_rate

Chris

[factor-fiction]

Remember, the rate reflects the fact that there is a reducing balance owed as you gradually pay off

A way to calculate it which gives a good approximation is to say:
Amount of interest to be paid = £5401.05
amount being repaid in instalments= 45625.50-19559.5 = 26066
Average amount outstanding from this over the loan period= 13033
Add the 19559.45 to be paid at the end gives total of 32592.45
So average amount owed over the 3 years= 32592
interest charge of 5401 as a percentage =16.6%
Divide by 3 for annual rate = 5.5%

I've rushed this and gone a little wrong somewhere but I hope you get the idea.

[buildersmate]

Yes, much like F30, I can't make it balance absolutely, but agree that the reducing balance approach is right.
The numbers are something like:
45625.50 224.33 221.01 217.67 214.32 210.96 207.57 204.17
899.06 899.06 899.06 899.06 899.06 899.06 899.06
44950.77 44272.71 43591.33 42906.59 42218.49 41527.00 40832.12

200.76 197.32 193.87 190.41 186.92 183.42 179.90 176.37
899.06 899.06 899.06 899.06 899.06 899.06 899.06 899.06
40133.82 39432.08 38726.89 38018.24 37306.10 36590.47 35871.31 35148.62

172.81 169.24 165.66 162.05 158.43 154.78 151.12 147.45
899.06 899.06 899.06 899.06 899.06 899.06 899.06 899.06
34422.37 33692.55 32959.15 32222.14 31481.50 30737.23 29989.29 29237.68

143.75 140.04 136.31 132.56 128.79 125.00 121.19 117.37
899.06 899.06 899.06 899.06 899.06 899.06 899.06 899.06
28482.37 27723.35 26960.60 26194.09 25423.82 24649.76 23871.90 23090.21

113.53 109.66 105.78 101.88 97.96
899.06 899.06 899.06 899.06 19559.45
22304.67 21515.28 20722.00 19924.82 463.34

Each of these 36 columns represents the situation at the end of each successive month of the 36 month contract. It reads left to right, then down to the next block of numbers.
The top number in each block is the interest due during that month (it reduces as the balance gets paid off), the second number is the payment you made (£899.06 each month except the last month) and the third number is the outstanding balance at the end of the month.
It isn't far out, so something in my assumptions is not quite right.
(I used MS Excel to do this quickly)

[buildersmate]

OK, a valiant effort in presentation which looks fine on the preview screen but gets garbled by the formatting of AB.

[SpikieMikie]

Cheers for that All.... its probably Range Rovers figures that are wrong, not yours... trying to bleed another couple of quid a month out of me !

If I could work out how they calculated their APR, I was hoping to calculate the APR on another deal I've seen, but its too hard so I'll just ask instead ! ....

[cassa333]

My first thought was if I could afford a £50,000 + car I could afford to get someone to calculate it for me LOL

TBH I think most people don't know if the calculations are right. I bet someone makes a bomb from all the over charges somehow!!!