Loan APR's? Confusing! HELP!

hazysunshine

Hiya

Im trying to get my head around loan APR's, and the total amount payable - things like that.

Here's an example for you...(using Northern Rock's 'Loan Calculator' - note, I did not include any PPI)

If i want to borrow £15,000 at 5.8% APR, over 4 years, the total amount payable is £349.89 a month. Times this by 48, and the total amount over the 4 years is £16,794.72.

My confusion lies in the fact that the total amount repaid at the end is about 12% on top what I borrowed. Im confused as to what the 5.8% bit refers to?

My simplistic brain would think that the 5.8% means i pay £15,000 plus 5.8% which is £15,870

I've read the various help pages, and I don't know if im not including things like set-up fees and compound interest - or if I'm just completeing missing the point all together!

Sorry if I seem a dunce - any help would be lovely! Or indeed a link to a page I probably missed that explains all I need to know!

Jimbo:D

Jools07

APR doesn't affect your monthly payments, it's there as an overall estimate (confusing? yes). Your monthly payments are a based on the interest rate and loan length.

You're getting a good deal by the sounds of it anyway. A friend just borrowed 10k over 5 years and he's got to pay back £13,600.

thesaint

The A.P.R. is the Annual Percentage Rate.

The loan would be 5.8% per year so you get charged that amount on the balance owing each year in simple terms.
It can be manipulated, I can't remember how, you may have to do some research, although looking at the total amount payable is good.

MarkyMarkD

As long as you are not taking the PPI, the APR can't be manipulated on a personal loan like this and it is a fair comparative tool.

Robert_Sterling

thesaint wrote:

The A.P.R. is the Annual Percentage Rate.

The loan would be 5.8% per year so you get charged that amount on the balance owing each year in simple terms.
It can be manipulated, I can't remember how, you may have to do some research, although looking at the total amount payable is good.

You do not understand what the APR is.
It is not the rate charged on ther loan.
It is a figure calculated in accordnace with the Consumer Credit Act.
It is used for comparison purposes.
It is sometimes useful and sometimes useless.
It is often misunderstood.

Robert_Sterling

jimbojet wrote:

Hiya

Im trying to get my head around loan APR's, and the total amount payable - things like that.
I wish you luck as you will need it.

Here's an example for you...(using Northern Rock's 'Loan Calculator' - note, I did not include any PPI)

If i want to borrow £15,000 at 5.8% APR, over 4 years, the total amount payable is £349.89 a month. Times this by 48, and the total amount over the 4 years is £16,794.72.

My confusion lies in the fact that the total amount repaid at the end is about 12% on top what I borrowed. Im confused as to what the 5.8% bit refers to?

The 5.8% is the APR and is not the rate applied to your loan necessarily. In any case the rate of interest applied to your loan is applied to your loan each year ( that is what per annum means ... Each year ). So you might expect to pay about 23% altogether over 4 years. However as you are paying some interest and some capital back each month on average over the four years you only owe about half the original amount of the loan. So over 4 years you might pay about 12% of the original loan. What the 5.8% APR implies is that this loan is better than one with APR 5.8% and not as good as one with APR 5.5%

My simplistic brain would think that the 5.8% means i pay £15,000 plus 5.8% which is £15,870 Hmmm

I've read the various help pages, and I don't know if im not including things like set-up fees and compound interest - or if I'm just completeing missing the point all together! These items alter the APR but do not alter the rate you are actually charged

Sorry if I seem a dunce - any help would be lovely! Or indeed a link to a page I probably missed that explains all I need to know!
Jimbo:D

I hope the blue bits above are more of a help than a hinderance but I am not optimistic.

I think your biggest mistake is not realising that an interest of let us say 6% p.a. means 6% per annum ( each year ) and not 6% altogether.