How to work out interest on Loan APR

vxinsignia_2 · 27 November 2009 at 12:50PM

New to this but I am trying to find out is there a calculation i can use to estimate the total amount of interest payable on a loan.

Currently I have a loan for £7380 for a conservatory which is payable over 8 years at a rate of 19.9APR (high i now) but i was on one of those buy now pay next years offers and now its time to pay it. On reviewing the paperwork the amount of interest seems really high

Any help would be appreciated.

CLAPTON · 27 November 2009 at 3:28PM

gives us the full details

vxinsignia_2 · 27 November 2009 at 4:02PM

OK, actually loan is £7,380, over a period of 96 months (8 years). With nothing to pay for 12 months but obviously interest is being charged. Then 84 payments @ £184.67.

On the agreement paperwork interest is at 19.9% APR and defined interest value is £8,136.

This then works out at a total of £15,516 to be paid back over 7 years.

Is this enough, if you need more shout

Firewallrob · 27 November 2009 at 4:44PM

APR is a rate that includes fees etc over the course of the loan period - using this rate to calculate interest will not be 100% accurate.

£7,380 * 19.8% (assuming correct rate) = 1,461.24 a year.

What is actually happening though, is that they plonk interest on your account daily, or monthly - then you pay interest on the interest, enabling the APR rate that you have been quoted.

So jan 1 (as example) your balance starts at 7,380. You get 124.10 added at the month end (if applied monthly), and as you haven't made any payments, then feb starts with you getting charged interest on the new higher balance etc.

Firewallrob · 27 November 2009 at 4:46PM

........after this has happened for the whole 12 months you haven't made a payment, you can see why you pay so much interest :eek:

I have made assumptions about the flat rate of interest you are actually paying (which will be wrong), but you get the idea.

CLAPTON · 27 November 2009 at 4:53PM

Unfortunately, 19.9% is a very very high rate of interest
and delaying paying for the first year means an extra 1,450 (approx) was added to the loan so after 12 months you then owed about 8,849

the total interest you quote of 8,136 seems about right I'm afraid.

I don't know of an online calculator but if you google 'loan amortisation' you will find several loan calculators... they are geared to mortgages but the calculation is the same

they don't give a payment free period but if you just add the first years interest ..7380 x 19.9% = 1,468 to the loan amount of 7380 = 8849 and use that figure at the principal and then 84 months as the payment period you will get accurate results.

halifax71 · 27 November 2009 at 5:28PM

In Excel work out the monthly interest using the formula
=POWER(1+0.199,1/12)-1. The 0.199 is your APR as a decimal in case you want to use this again.

The above gives a monthly rate of 1.5239%.

Do a table in Excel (i've rounded my numbers for ease.)
month, Balance b/f, Interest (Bal b/f * 1.5239%), Paid (negative), Balance c/f

Month 1 would be 1, £7380, £112, £0, £7492
Month 11 would be 11, £8585, £131, £0, £8716.
Month 12 would be 12, £8716, £133, -£185, £8644

Carry on through to end of month 95. Paid up.

You pay £15,512 in total and the 19.9% APR is correct.