Loan maths question

Chunky&Co

Sorry if asked before, I have tried a couple of seraches.

I have taken a loan out of £6000.00 from Alliance and Leicester at their advertsiaed rate of 8.9%. Total charge will be £6827.76

How do I calculate the interest on a reducing amount per month.

I'm pretty rubbish at manths.

Many thanks for your help

Chunky&Co

Got it now - Loan Amortisation!

anotherpaul_2

Presumably, if you're rubbish at Maths you'd like the easy way? Assuming it's a fixed repayment... roughly speaking take the outstanding balance for that month and multiply by 0.00717 and that's the interest for the month. You'll need to calculate the interest for each month and take off the repayment for that month to give you the balance for the next.

(I've rounded, so if you do this over the entire loan, it'll probably be about £10 out - I've not checeked.)

It's about £43 interest for the first month and gradually reduces down to nothing for the final month. As the loan progresses, you payments have less interest to cover and pay off more of the balance, so the interest reduces more quickly at the end then at the beginning.

Do you really want the formulae?

(Before anyone objects, I've rounded my numbers, used 8.95% as the rate since it's probably 8.949something, and assumed that monthly compounding rather than daily is sufficient.)