Calculating interest on a multi-installment loan

patwa_2

Hi.

I have just received the first installment of my loan. The interest rate is 2.4% APR. The schedule according to which I will receive m money is:

Month 1: £561
Month 2: £500
Month 4: £500

I'm just wondering if I've got the calculations for the interest right?

£561 * 1.024 (to get the annual interest for the 1st installment) = 574.46 or £13.46 interest
£13.46 / 365 * 30 (to calculate the daily rate multiplied by one month) = £1.11
£1061 * 1.024 (to get interest on total after 2nd installment) = 25.46 interest
Same as above, but interest for 2 months = £4.19

So, would this mean that after 3 months, by which time I would have received £1061, the interest due would be £5.30?

I understand that then, when I receive the third and final installment, I would re-calculate the interest on that amount for however many days until I pay it off. Is that right, or have I gone wrong somewhere?

Sorry the formatting for the calculations isn't that good.

Hussein.

Rafter

Hussein,

2.4% is a very low annual interest rate (APR) for a loan that size. Are you sure you are not paying 2.4% per month? Unless this is a student loan which has an APR of the rate of inflation.

The amount of interest you pay will depend on how much repayments you make, what your repayment date is, when you receive the money, whether interest is calculated daily, monthly or even annually so it is impossible to answer your question.

This might help:

If your APR really is 2.4% then.....

There interest rate per day is 0.0065%

The interest rate per month is 0.198%


The formula used in a spreadsheet is =(1+interest%)^n-1 where n is the number of periods.

So to convert from a monthly rate to an annual rate use =((1+INTEREST%)^12)-1 and from an annual to a daily rate ((1+INTEREST%)^(1/365)-1

Good luck.

R.

patwa_2

Hi, thanks for that.

Yes, the APR is indeed 2.4% calculated annually.

I noticed that you calculated the interest rate per day, and then use that to formulate the amount, rather than the total interest per year and then get an amount from that. Have to say your method looks easier.

I'll have to look at the info that came with the loan again to get the repayment periods etc.

Hussein.