loan balance question

wizard3891

Hi, I phoned up rac today to get a current balance on my loan. This loan only started in December just gone so 3 payments made so far.

£10000 loan amount 5 year term
8.9%
£208.38 monthly payment
I phoned up for a current balance to confirm my snowball plan and was told that the current balance is £12086 I was also told that the settlement figure today is approx £10100.

Does this seem right, the current balance seems high to me but im not sure

thanks

wizard3891

any ideas guys

mountainofdebt

When did you take out the loan and how many payments left?

grumbler

I am not expert in loans (luckily), but it looks very odd that settlement figure is lower than the current balance. Also why the current balance is higher than the initial one? Was PPI added to initial £10K? In this case monthly payments must be higher than £208.38.

You should read your credit agreement and post essential information, in particular about early repayment penalties, so that someone could try interpreting your figures ...
The only figures that make sence now are £10000, 5 years, 8.9% and £208.38.

YorkshireBoy

Interest is calculated and lumped onto the loan at the outset (hence your '3 month-in' £12,086 figure). This figure is then divided by 60 to give the monthly payments. At the start of the loan you are paying more interest and less off the capital. This ratio then reverses over time as you make your payments. The RAC website says they apply 28 days interest as a penalty for early repayment.

Figures would therefore appear correct.

grumbler

mountainofdebt wrote:

When did you take out the loan and how many payments left?

wizard3891 wrote:

This loan only started in December just gone so 3 payments made so far.... 5 year term

.................

grumbler

YorkshireBoy wrote:

Interest is calculated and lumped onto the loan at the outset (hence your '3 month-in' £12,086 figure).

Ah, I see ... £12,086/57=£212.

But how can you explain £10100? £10K taken, 3*£208=£625 paid. Current balance is about £9600 (http://www.bankrate.com/brm/popcalc2.asp?unroundedPayment=170.9374744545462&loanAmount=10000.00&nrOfYears=5.00&nrOfMonths=60&interestRate=8.9&startMonth=1&startDay=10&startYear=2006&monthlyPayment=+++++%3D%3D%3D%3E&showAmort=Show%2FRecalculate+Amortization+Table&monthlyAdditional=0&yearlyAdditional=0&yearlyAdditionalMonth=1&oneAdditional=0&oneAdditionalMonth=1&oneAdditionalYear=2006&paidOffDate=Feb+10%2C+2011 ), one month interest is about £10000*0.75%=£75 ...

If £10100 figure is correct, the penalty for early repayment is about £500, but not £75.