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Mr. Wilson
Mr. Wilson, Teacher
Category: General
Satisfied Customers: 5240
Experience:  M.A., M.S. Education / Educational Administration
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We are looking to buy a car and have found one that is £5,000

Customer Question

We are looking to buy a car and have found one that is £5,000 with a fixed APR of 7% a year.

Upon asking if we put a big deposit down (say £3,000) would we be paying less interest, they said no and in fact would end up paying more.

After looking up fixed-apr I understand now that no-matter what you are paying the interest on the initial sum... but how could we end up paying more if we put a bigger deposit down?
Submitted: 3 years ago.
Category: General
Expert:  Mr. Wilson replied 3 years ago.
Hello, my name is Greg and I am happy to help on this question.

You would NOT be paying more in the long run. The APR on the car is the interest you would be paying on the amount you are financing.

If you take out financing on the £5,000 at 7% APR for 5 years, you would be paying you would have £940.36 after 5 years and be paying £5,940.36 at the end of the 5 years.

If you put £3000 down, that means you are only financing £2000 of the amount at 7% APR for the 5 years. This would result in £376.14 in interest over those 5 years. Therefore, you would have paid £5,376.14 total for the car (the £3000 down, the £2000 financed and the £376.14 interest).

You would save a total of £564.22 over the length of the 5 year loan. Even if the loan was shorter, you would still be paying less. The APR financing is only applied to the amount you end up financing - not the selling price of the car.

I hope this helps.

Have a wonderful week and I hope you visit us again soon.
Customer: replied 3 years ago.

Would you know why they are saying it would end up costing us more if we put more of a deposit down?


 


I'm guessing they are just pushing us off the idea so there is more interest due?

Expert:  Mr. Wilson replied 3 years ago.
Sorry about that delay. Unfortunately I think you are right. The more money you finance, the more money they make in the long run. You only pay financing on the amount you borrow.

Greg

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