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Car agreement interest miscalculated?

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Last year I purchased a 6 month old BMW from a main dealer, and they arranged finance for me through BMW Financial services.;) In recent months I lost my job, have missed some payments, and am now looking to do a voluntary termination.:( However, when I asked BMW Finance for a settlement figure, it seemed rather high. On checking my agreement I have noticed that the total interest seems to be very high for the quoted APR (I used several on line APR calculators to try to check it is correct - but of course don't know if they are reliable), to the tune of approx 2.5k.:eek: How can I find out independently what the correct amount of interest is for the stated APR? I have already asked Trading Standards, FSA etc. Also, if the interest has been incorrectly stated, does it affect the validity of the agreement? I can post an anon copy of the agreement if that helps.

Thanks for reading, I would really appreciate any advice on this.

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Probably best to post a copy of the agreement minus anything that might identify you - watch out for barcodes!

Alternatively, set out all the financial terms as they appear in the agreement.


RMW

"If you want my parking space, please take my disability" Common car park sign in France.

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It is also affected by the price of the car I think which allows them to "choose" how many extra months interest they can apply.

 

Mine for instance was over 25K and they were allowed to defer the settlement by 4 months when calculating the balance due.

 

It's a very complicated formula which unfortunately I can't lay my hands on at the mo or I would have typed it here for you

 

edit

also don't forget that as well as the interest on the capital there will be further charges of around £400 for the agreement "admin" fee. For BMW this is usually paid as £200 on your first months payment and £200 on the last payment. Adding these charges onto your interest will make the apr look higher than you thought.

Edited by crem

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Thanks for your responses crem and reallymadwoman. Just to be clear, I am not querying the settlement calculation, which I accept is correct, if based on the quoted figures in the agreement.

 

The bit in the agreement I am querying is the original total interest figure quoted over the 4 years of the agreement.

 

The financial terms are:

 

Amount of loan £29,450

Other fees added to the agreement £225

Duration of agreement 48 months

Total amount payable £38,700

 

Interest flat rate 10.6%

Interest APR 10.9%

 

Total interest charged £9,025. :eek::eek::eek::eek:

________________________________________

 

It is this last figure of total interest charged which seems excessive, based on their quoted APR of 10.9% over 48 months. (Obviously, this figure also affects the final settlement amount, as it increases/decreases the total amount payable under the agreement.)

 

What I need to know is how do I calculate that their quoted interest figure is correct or not? If it is incorrect, is the agreement enforceable :confused:

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I have no idea if that amount of interest is right or not. If one of the experts hasn't looked in and made a comment say by this time tomorrow, post 'bump' which will take your thread back to the top of the forum and get my attention, and if necessary I'll ask someone to take a look.


RMW

"If you want my parking space, please take my disability" Common car park sign in France.

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Is there a balloon payment at the end? If so, how much is it because this will affect how much capital and how much interest you are paying earlier in the loan.

 

To get something like the figures they are quoting I have used an apr of 10.9% and get the following:

 

Amount of loan £29,450

Monthly payment £542.05

Balloon Payment £12,456

 

Charges £225

Total Interest £9,025.05

Total Payable £38,700.05

Edited by crem

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Thanks for your responses. Crem - The balloon payment is around £14,300 and the monthly payment is a bit less than your estimate. The bit I don't understand is how they arrive at over £9k interest on a loan of under £28k. I realise that the balloon payment represents the difference between the sum of 48 monthly repayments and the balance outstanding at the end (total £38,700), but £9k interest on a loan of around £28k doesn't add up with an APR of 10.9% over 4 years?

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OK, working to that new balloon figure, I would get;

 

loan 29,450

48 payments of 505.65

Interest 9,122

Balloon 14,300

Charges 225

 

Total payable 38,796

 

Bearing in mind I am only doing rough calculations without the benefit of their complex formulas, I think the bad news is their calculation is just about where I would expect it to be.

 

What I think you are overlooking is that every month you make a payment, you are "underpaying" against the capital which is what then leaves the balloon payment at the end. But consequently you are paying interest each and every following month for this "underpayment".

 

To pay your loan off in 48 months at 10.9% apr without owing anything at the end would have made you pay around £748.50 per month and your total interest payment would have been around £6,483

 

By "underpaying" by circa £240 in the first month, you are going to pay interest on that 240 for the next 47 months. In the 2nd month you "underpay" another 240 which accues interest for the remainder 46 months,, etc,, etc

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Crem, thank you for the explanation, that is very enlightening, if not what I was hoping to hear!

I had not realised that was how the interest is calculated, and it was never explained to me. Whilst I realised that the 48 monthly payments (obviously) do not pay off the balance in full, I naively assumed that the "balloon" at the end of the agreement is based on the notional value of the car (thus allowing you to then hand the car back as "collateral" if you wish), whereas what I understand you are saying is that it is compound interest? Should this not have been explained to me at the start (there is no mention of it in the agreement), as, for example, in the t&c's of a credit card agreement?

 

Thanks for your reply, very helpful.

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Another way to look at it is that they took the 9,450 off the original loan and put it in a "jar" on the shelf. that left you 20,000 to pay off in the 48 months. this you did by paying around 48 x £505 = 24,240.

 

great so far, if they just asked you to pay off the 9,450 quid sitting in the "jar" making your total payment around £33,900....

 

but..... whilst that 9,450 was sitting in the "jar" not getting touched, it was also gathering interest at 10.9% the same as your main loan, and as you weren't paying anything towards it, each month the interest added to the 9450 was now gaining interest at 10.9% as well. Compound interest as you said in your previous post.

 

Roughly, the compound interest on £9,450 over 48 months would be £4,690 bringing that up to the £14,300 that you knew was going to be the balloon at the end.

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