Help!

whitlingham

Hey all

I borrowed the amount of £35000 at 5% interest rate .I would like to know how much interest I owe if I borrowed it 1 year ago..Is it simply 5% of 35000?
I always thought it was ..until a friend borrowed £10000 at 6.5% which she is paying over a period of 2.5 years...Now I would work that out as 6.5% of 10000 x 2.5 which would make her pay back the total of 10000+1625 but apparently shes only paying back about 11000 which doesnt make sense!
Help..Im really confused now!!

Thankyou x

standupguy

You are confusing a flat rate with an apr or true rate of interest.

The example you give looks to be an apr not a flat rate - the flat rate is roughly half the apr rate.

If you borrow say £1000 at a flat rate of 10% over 12 months then you would pay back 1000 x 10% = £1100. Say 12 months payments of £91.66.

In real terms though after 1 month you owe less than £1000 ( you have made a payment of £91.66) and this goes on and reduces for every month of the agreement.

So that £1000 borrowed is reducing quickly.

This has the effect of making the true rate of interest or apr much more than the flat rate of 10%

In this example the apr will be around 19% apr - about twice the flat rate

Hope this helps

whitlingham

Thankyou for replying but Im not sure I understand sorry ...

This money I owe would have been in a savings account for the past year and the person who lent it to me wants it back now at 5% interest rate.I want to know how much interest I have to pay her on £35000.

What I dont understand is why somebody borrowed £10000 and is going to pay it back in 2.5 years - 6.5% APR and is only going to pay £11000 at the end of it..

Doesnt that make me owe her less than 5% of £35000 ?!

Thankyou for your time