Have I done my sums correctly?

birduk

Hi all, I hope some of you with a bit more financial awareness can work this out for me.

I took out a daft loan in December 07. Turns out I didn't realise the difference between APR and interest, so not such a good deal after all. At the moment I pay £250.01 per month with a final payment due in December 09 of £330.01. This means that the balance of my loan is £3830.15.

If I pay it off in the next few weeks, the 'settlement figure' is £3500.87. I worked out that if I put this in the Kaupthing edge savings acount for that time I would have £3715.81 (according to Martin's calculator).

So effectively I am saving £114.34 (3830.15-3715.81) if I pay off the loan early- now that does not seem good! Is that the right figure?

Many thanks for your help in advance!

iolanthe07

Turns out I didn't realise the difference between APR and interest,

I don't really understand this post, because APR is just one way interest is calculated. APR means annualised percentage rate, so, say, 5% APR means that you pay 5% per year on the diminishing balance. The alternative is flat rate, where you pay interest on the whole of the principal for the whole term. Before you pay off the loan early check for any penalty clauses - often you have to pay three months' interest as a redemption fee.

birduk

I don't have my paperwork to hand, but it said something like- INTEREST RATE 7.5%, which I thought was the APR. Hence where it said APR= 23% (or thereabouts) I crossed it out, as I thought it was wrong.

The 'interest rate' was charged on the whole loan and hence the APR was correct. I think this is what you are callling the 'flat rate'. I think this is now why my settlement figure is so high. This is the figure they gave me today. I think I have been penalised enough with that figure to be honest!

birduk

OK, Can anyone help- have the paperwork now.

The exact detail are
'APR: 21.1%' Written in top left hand corner so easy to see why it was confused

'Cash price £6495
Advance payment £1495
Total charge for credit £1080.24 comprises-
Interest- £870.24
Credit facility fee £130
Completion fee £80
Rate of Interest on the Credit 8.5% per annum'

Can you see why I was confused? So the balance (amount left to pay if I paid each month the 250.01 etc) is £3830.15
The settlement figure is £3500.87
If I put that balance in a savings account I could have £3715.81 at the end of the term.

So I save by paying it off? Anyone?

jonesMUFCforever

It will depend on how they calculate the interest.
If its charged daily you will save by paying it off early - if its charged at the beginning then you won't.

iolanthe07

You'll have to read the terms and conditions very carefully and make your decision based on them. Incidentally, the 'credit facility fee' and 'completion fee' seem a total rip-off - are they included in the APR? For the future, always look for the APR, as other ways of showing interest can be very misleading. Some car dealerships in particular are keen to offer credit facilities based on a low sounding flat rate which actually translates into high APR when you do the sums. They are hoping you won't (as indeed you didn't!)

birduk

Yep Iolan that is exactly what happened. I won't be making that mistake again. Once bitten and all that.

I made the mistake of working out the interest on the whole loan, which then obviously translates to a shocking APR. The 'Credit facility fee' and 'Completion fee' are exactly that- a big rip off. The only bonus is that they were after copies of my paperwork and agreed to follow me home to get them. Only problem was I forgot on the way home so they had to make two visits and wait a while for their money. All the while I had the car.

Ah well. Lesson learned for future eh? Thanks for your help.