Your Questions Answered

General Information

Flat Rate Vs APR - What's the difference?

Members need to be on their guard when dealing with car dealers. Legally, dealers are obliged to confirm the APR (annual percentage rate) before you sign an agreement where finance is being provided to fund a vehicle purchase.

A member recently contacted bira bank to enquire about vehicle finance rates. He was surprised when we quoted both an APR figure and a flat rate figure, particularly as his recent visit to a car dealer had only elicited a very attractive flat rate with no mention of APR at all. In practice, you may be lucky to be quoted any rate at all by some dealers during preliminary discussions while others may quote you the flat rate as opposed to the APR as it always appears the most attractive being the lesser of the two. Unfortunately, this can be misleading as you may think that you are getting a good deal when in practice you are not.

So what is the difference between the flat lending rate and the APR? The flat rate is the basis of the calculation for the amount of interest you will pay over the term of the loan. However, as the loan is diminishing as it gets paid back over the loan term(say 3 years),then the “real” rate of interest is higher as it is calculated based on interest payable v the average size of the loan outstanding throughout the term(plus certain fees associated with the loan).

Typical example: On a loan of £10,000 over 3 years for a new vehicle,our flat rate of 3.30% equates to an APR of 6.40% (note: the APR is always just over the flat rate *2).For a dealer to quote 3.30% then he should clarify that 3.30% represents the flat rate not the APR.

Always get the dealer to quote the lending rate and to clarify whether it is the flat rate or the APR and compare like with like. Knowing the difference can really save you a lot of money.

How are repayments made

All repayments must be made by standing order from your bank or building society and should not be less than £20 per month.

What about loan insurance?

Payment Protection Insurance is to be arranged at your own discretion. We do not offer this service.

What about VAT?

For all items regardless of whether VAT is recoverable, it is a legal 
requirement that the supplier’s invoice must be made out to ‘Bira Bank’. If VAT is recoverable (on most items except cars) then this can be done on the authority of the finance document which will be your input advice. All the VAT on a hire purchase agreement is recoverable on your next VAT return regardless of the fact that you may not have completed the 
purchase until, say 36 months time. VAT on leases is charged and
recoverable on each monthly instalment, for which we will provide a VAT invoice.

Can I settle early?

You may settle your outstanding balance at any stage of the agreement without penalty, and an appropriate early rebate will be given. If you have financed a vehicle under our affinity partnership schemes, different rules apply. You can settle your outstanding balance without penalty after 12 months.