Understanding the 'Total Amount Payable (Principal Balance Owed)' when taking a loan, car finance or mortgage

A car loan includes several components such as car price, interest, deposit, monthly installments, administration fees, etc. If you are taking a loan under PCP finance, the loan also involves additional factors such as GMFV. Apart from these factors, an important number that deserves consideration is the total amount payable. This amount will give you an overall picture of the finance deal.

The total amount payable is sometimes referred to as the total amount borrowed or, in strict finance terms as the Principal Amount Owed

What is the total amount payable?

Total amount payable is the actual amount you are paying during the loan term. It is a total of all the monthly installments paid during the loan period. Or in other words, this is the total amount you owe to the financing company, including interest.

Example 1:

For example, you want to purchase a car worth £10,000. You may go for a 36-month loan at an interest rate of 5%. There may be an administration cost of £100. At an interest rate of 5%, your monthly installment will be around £302.71 for 36 months. So in total, your total amount payable will be around £10,898 (£308.70x36 months).

Total amount payable in relation to PCP

In the context of PCP finance, the total amount borrowed plays a key role in comparing two PCP deals as well as comparing a PCP deal to other forms of finance.

Example 2:

You may want to buy a Vauxhall Astra worth £12,995 under PCP. The loan term is 36 months; interest rate is 5%, and the GMFV or residual value is £3,000. There is an administrative cost of £100, and other costs are £200. The monthly installment is £308.55. So in this case, your total amount payable is £11,108 (£308x36).

Why is it important to calculate the total amount payable?

Like with all PCP deals, the monthly installment amount may look very attractive in comparison to other forms of finance, such as HP. However, if you look at the total amount borrowed, you'll realize that you'll end up paying a large portion of the original price of the car. And in case you want to own the car at the end of the term, you will have to pay a further £3,000. Including the GMFV, the total amount may turn out to be quite high compared to a loan under hire purchase (HP).

The total amount payable also helps in comparing two PCP deals. In many cases, lenders may promote their deals by showing low-interest percentages or low administration fees. Some lenders may offer lower deposit or a higher GMFV. In such cases, the total amount payable can be helpful in comparing two different PCP deals.

The above examples are just a few illustrations. You can calculate the total amount payable under different scenarios by using our free PCP loan calculator. Top tip: Total amount payable includes interest, and it should not be confused with total to be repaid, which does not include interest.