# Car finance`



## rich-hill (May 13, 2008)

I am currently looking at changing by car, I would need to borrow £2000

When i asked them about the rate of interest they charge on their finance they said that they work on a base rate of 5.5%. When i questioned what this was in terms of APR they were unable to say, and said as a ball park figure it's around 10% APR.

Could someone explain this for me please? What do they mean base rate, and how from this am i able to calculate the APR myself?

Cheers

Rich


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## Maggi200 (Aug 21, 2009)

You pay interest on it monthly based on an annual rate. SO say you borrow £1000 at 10% you would pay interest on that at 10% x 1/12 each month. But as you make payments this gradually goes down, although is likely spread over the course of the loan, I assume it won't be repaid early to save any interest. How long will you be borrowing it for? Would it not be easier to save £2,000? It's not a massive amount of cash.


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## rich-hill (May 13, 2008)

I would normally save it, but the car I like has appeared.
I would look to repay it over 2 years.

So what would the APR be for base rate of 5.5% over 2 years £2000


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## Maggi200 (Aug 21, 2009)

APR will be based on your current financial situation. Your job, your history, how much borrowed. For such a small amount, it's likely to be a massive APR. I think it's around £7,500 that the first big drop comes in APR.

But for over 2 years, say it's 10% APR you would be looking at about £95-£100 monthly repayments and like £185 in interest. The chances of that are probably not a lot. I take it you're young like me, since you're asking this question, so it's probably gonna be quite high


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## tom_painter85 (Jul 5, 2007)

The APR will vary depending on the amount you borrow, the term, the flat rate, and also the fees involved in the finance - eg. purchase fees, etc etc.

APR will look horrendous on paper - like these 'payday loans' - £70 over 5 days, pay back total of £79.22, something like 2369% APR. The finance company/dealer should have to show you before you go through the proposal process.

Car finance is slightly different to a personal loan (generally) as it's secured on the vehicle, so earnings, credit history SHOULDN'T (in most cases, unless you go sub-prime) make a difference to the flat rate. However, again this will vary form lender to lender.

If you want any more info, drop me a PM mate


Tom


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## Nanoman (Jan 17, 2009)

£2000 over 1 year at 5.5% is £2110 but then you have to add the fees which are likely to be roughly £200. So to borrow £2000 over 1 year costs about £2310. i.e. fees cost more than the interest!

Don't worry about the APR just worry about how much it costs in interest and fees. You'll probably find that the garage's finance is going to be way more expensive than a loan from a bank. Ask them if it's HP or if it's a Personal Loan they are aranging for you. If it's HP there may be advantages such as being able to hand the car back. If it's a PL you're probably cheaper arranging it yourself mate.

To check the cost of a personal loan visit moneysavingexpert.co.uk


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## bjarvis2785 (Oct 4, 2008)

for that amount i would be more inclined to put it on a credit card that offer cash back on purchases, and then transfer that balance to another card with 0% for 15 months (or similar).

just a thought...


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## Frothey (Apr 30, 2007)

grantwils said:


> You'll probably find that the garage's finance is going to be way more expensive than a loan from a bank.


Not always true - most car manufacturers finance houses want business, banks dont. Also HP is easier to get than personal loans.


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## Nanoman (Jan 17, 2009)

Frothey said:


> Not always true - most car manufacturers finance houses want business, banks dont.


Hence the word 'probably' and 'garage'. Having worked in car sales I know that on most occasions the 'garage' finance will be more expensive than from a high street.



Frothey said:


> Also HP is easier to get than personal loans.


.
I'm not quite sure this is true dude. I can't really think of an occasion where it's easier to get HP than a PL. Although the finance is secured on the vehicle in HP the buyer has certain rights that they don't have with a PL - you also usually need a higher deposit to get HP. You're more likely to get a PL with higher rate than HP in most circumstances.

Manufacturer subsidised finance CAN sometimes be cheaper - I took advantage of subsidesed finance with Audi when I bought the A3 but you'll usually only get this on a new car.

If the OP is only financing £2000 it's unlikely to be HP and it's likely to be a used car so I reckon it'll be cheaper to finance it himself. I might be wrong though...


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