Finance Miscalculations, Thais trying to rip you off or honest mistakes

[torrenova]

As some of you know, I'm trying to get a vehicle on finance. NOw lets forget all the paperowrk crap for a moment and look at the numbers.

 

The little men in the garages and even Toyota's website in LOS uses this formula (Nissan's uses the correct maths):

 

Initial finance amount * interest rate * years / months + Initial finance amount / months as a monthly amount.

 

Now the problem here is that it takes no effect of a depreciating balance. i.e If you borrow Bt500k then after 1 month, you have paid back some interest and some capital thus the interest portion is less and the capital repayment increases in every subsequent month.

 

I attach an excel spreadsheet which highlights this. Use need to add in Analysis ToolPack.

 

Has anyone either noticed this, argued it, had the finance company come up with the right numbers ir is the garage just trying to rip you off (which I find strange as you don't repay the garage, you repay the leasing company like Toyoto Leasing).

 

I uploaded an Excel spreadsheet here which shows this:

 

Excel amortisation formulas for mortgage or finance

[TokBet]

I once started to discuss this with the staff at a car dealership. I think all of the staff, including the management was involved in the discussion. I tried to explain finance/interest to them, but they didn't have a clue. (Mathematical Finance is one of my primary fields of expertise.)

 

I think that they thought that I was a stupid farang. They kept on saying "That's not the way it is done in Thailand". They kept on trying to explain it to me, as if I was stupid and needed to be educated. I got nowhere trying to explain it to them as they 'shut off' listening. Very frustrating for me and them and I then lost my cool. They were treating me like an idiot, so in exasperation, I grabbed a pen and wrote down a the total interest paid over the lifetime of the loan if it were a continuous interest rate. I wanted to impress them with some calculus, and I think I did because at that point they stopped trying to preach to me. They look on their faces was a typical 'duh' and then silence. That's when the discussion ended.

 

Thailand doesn't have strong consumer finance laws, such as needing disclosure, such as showing the effective annual interest rate.

 

This all allows companies to take advantage of the general population.

 

It's pretty sickening, actually.

 

 

[torrenova]

If you looked at the example in my spreadsheet it equates to about 35k-42k in their favour depending upon which model etc.

 

My girlfriend, in whose name the car will be cannot understand maths at this level.

 

I do not know whether the garage is in on it or whether they really do not know. I do know that you do not pay the garage but in the case of either Isuzu or Toyota, you pay their respective leasing people. Whether the leasing people send out the right forms I do not know. Thais being Thais, even my girlfriend does not want to get into this too far as she cannot understand it too well herself. She does understand though that after the first payment, you no longer owe the original amount.

 

I just notice that Nissan have updated their website to use the "wrong" calculation.

 

I suspect that it is a countrywide fiddle. They do not want to discount the price of their vehicles but want to "give away" stuff like free insurance, bumpers, servicing etc. ON the truck I propose to buy this equates to around Bt32,000 out of the rip off Bt42k. I'm off to Sukhumvit in Pattaya this afternoon to have it out with them as up country they speak no english.

 

I even said to my girlfriend that to "oil the wheels" I would allow them to keep some of it by still giving me the goodies but reducing the price of the car.

 

If I get no satisfaction, I'm off to Toyota, Isuzu and Honda leasing with my laptop to get some answers. I hope that the figure is just a dealer "guistimate" but I'll eat my hat if its not another fiddle as the average Thai is just too damn glad to get any car that they do not and cannot work out they are being screwed over. No wonder they like you to have finance so much !

[Bangkoktraveler]

I can't pull up your spreadsheet. Can you put the data in here so I can give a crack at it?

[The_Munchmaster]

It's the same in Dubai.

 

The interest for one year is multiplied by the number of years over which you want to repay the loan, added to the amount of the loan and then divided by the number of years to give the monthly payment, i.e., if you want to borrow Dhs 100,000 over 3 years at 4.5%.

 

100,000 x 4.5% = 4,500

 

4,500 x 3 years = 13,500

 

13,500 + 100,000 = 113,500

 

113,500 / 36 months = 3,153 per month.

[elef]

If they at least had used the average loan (50,000), but in the start it's just interest and in the end almost nothing. Making an excel model takes 5 minutes if you know the maths as torrenova already said.

[torrenova]

OK for the data.Perhaps you have to be a member of Thai visa to get access. I don;t seem able to upload it here.

 

Formula Help

 

PMT(r,N,L)

NPER(r,p,L)

CUMIPMT(r,N,L,1,n,0)

CUMPRINC(r,N,L,1,n,0)

NewBalance = L(1-((1+r)^n-1)/((1+r)^N-1)

 

r : Monthly Interest Rate

n : Number of Months

N : Total Number of Months

L : Loan Amount

p : Monthly Payment

 

Note: CUMIPMT & CUMPRINC

require the Analysis ToolPak add-in

 

So a truck at 767,000 with a 15% deposit financing 651,950 at 3.40% over 48 months should give a capital repayment of 12,698.83 in month 1 and an interest payment of 1,847.19 also in month 1. Total payment throughout is 14,546.02 (2DP)

 

Their calculations are:

 

Finance 651,950 at 3.4% pa = 22,166.30 pa = 88,665 over 4 years. 88,665 / 48 = 1,847.19

 

Capital repayment = 651,950 / 48 = 13,582.29

 

Total repayment = 13,582.29 + 1,847.19 = 15,429.48 per month.

 

Their overcharging = 15,429 - 14,546 = 883 per month * 48 months = 42,406 over the life of the loan. This equates to 6.5% of the amount financed.

 

This is the same as financing at 6.4% over 4 years. Not terrible but not the bargain it is supposed to be.

[Nervous_Dog]

I thought that there was a few different types of ways to calculate interest payable, one that is calculated on the reducing amount of the borrowed amount, and one that is calculated at a fixed repayment, no reducing amount??????

[The_Munchmaster]

I thought that there was a few different types of ways to calculate interest payable, one that is calculated on the reducing amount of the borrowed amount, and one that is calculated at a fixed repayment, no reducing amount??????

There is and I'm sure Thailand and Dubai aren't the only countries where the fixed repayment is the norm.

 

[elef]

It's also a question how often the interest is charged, 1, 4 or 12 times a year? You must analyze the legal situation to find out what is correct in each case.

 

Torrenovas model seems to calculate the effective interest rate and can be used to negotiate how much to pay.