Hire purchase with balloon payment- FRS102

Does a balloon payment contain interest?

Didn't find your answer?

I hope that someone can help. Trying to calculate the interest allocation (using goal seek in excel) on a hire purchase agreement that has a balloon payment - does anyone know if the balloon payment should include interest or if it is just capital? The balloon payment is not optional. 

 

 

 

 

 

Replies (6)

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RLI
By lionofludesch
25th Nov 2020 17:23

It doesn't "include" interest as such but it's a loan on which interest is charged.

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By Truthsayer
26th Nov 2020 00:12

It is for you to make that judgement. You should look beneath the form of the payments and decide what is their substance. You are the one in the best position to do this, not us. This is part of being an accountant.

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Replying to Truthsayer:
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By Mr_awol
26th Nov 2020 10:18

If only the Hire Purchase company put some helpful information in - like total interest payable, effective APR, schedule of repayments. Stuff like that.........

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Replying to Mr_awol:
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By Radar
26th Nov 2020 14:50

Apologies if I am asking a silly question, have had a death in the family recently and perhaps the brain is not working as well as usual.

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Replying to Radar:
RLI
By lionofludesch
26th Nov 2020 15:05

Radar wrote:

Apologies if I am asking a silly question, have had a death in the family recently and perhaps the brain is not working as well as usual.

Well, don't worry too much about it.

Provided you make a decent stab, the chances of the error being material are next to nothing.

Sum of the digits - you can do it on a fag packet and the answer's near enough.

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By paulwakefield1
26th Nov 2020 08:17

Is it relevant? The amount financed will be the purchase price less any px less any cash up front. The term and total payments and their timing will be known. The difference between the two will be the finance charge and Excel will give you the effective rate.

I'm assuming there is no guaranteed residual value if it is straightforward HP but that can be built in if appropriate.

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