Working out Loan costs

Super_Ram

Hi All,

Got a bit of a query I am hoping someone can help me with.

I took a Car Loan out a few months ago which was not good interest rates but all I was eligible for but am not really worried about that. My query is I am trying to work how they are calculating the Interest so I can work out what sort of saving I would be making if any on early repayment at certain times. Basically I am looking at if paid off within the next year would I make savings.

Details of Loan

Initial borrowed: 6400
Term: 36 Months
Total Repayable: 8828.49
Paid of to date: 707.31

Interest rates

19.80% per annum applying for the duration of the agreement

23.64% APR

So again I am just trying to work out how the Interest is calculated on my loan so I can hopefully work out what sort of savings I would make by early repayment at different times within the duration of my loan.

Thank you in advance for any help

[Deleted User]

It will be charged daily on the balance.

Super_Ram

Deleted_User wrote: »

It will be charged daily on the balance.

Thank for that. But still do not understand how I can work out what Interest I would save in paying if say settled loan within 12 months or another period before the 36 months. I do know that the longer to pay off the less I will save on paying the interest.

However which rate will be charged as they quote the per annum and APR which are different.

TurnUpForTheBooks_2

Hi Super_Ram

I think for the time being the interest rate that you need to use is the higher one but we shall see.

I have created a rudimentary spreadsheet and from the information you have given so far I deduce that your loan balance statement five months after you started the loan was £5,692.69 i.e. £707.31 less than the £6,400 you borrowed?

I can help you further if you tell me the actual date you took the loan and the date at which your balance had reduced to £5,692.69, and whether you had to pay a fee to get the loan (in other words a setup fee might explain the difference between the two interest rates).

If the interest rate is fixed and your payments are level payments calendar monthly, I estimate from information already given that you are paying around £230 per month in arrears but I am assuming perhaps incorrectly that your first payment was exactly a calendar month after you took the original loan. It is of course quite possible that you actually pay on a different day of the month. Again, if you tell me, I can help you more exactly and perhaps can send you the spreadsheet when it is finished so you can play around with it.


PS You are racking up something over £3 a day in interest at the moment.

Super_Ram

TurnUpForTheBooks wrote: »

Hi Super_Ram

I think for the time being the interest rate that you need to use is the higher one but we shall see.

I have created a rudimentary spreadsheet and from the information you have given so far I deduce that your loan balance statement five months after you started the loan was £5,692.69 i.e. £707.31 less than the £6,400 you borrowed?

I can help you further if you tell me the actual date you took the loan and the date at which your balance had reduced to £5,692.69, and whether you had to pay a fee to get the loan (in other words a setup fee might explain the difference between the two interest rates).

If the interest rate is fixed and your payments are level payments calendar monthly, I estimate from information already given that you are paying around £230 per month in arrears but I am assuming perhaps incorrectly that your first payment was exactly a calendar month after you took the original loan. It is of course quite possible that you actually pay on a different day of the month. Again, if you tell me, I can help you more exactly and perhaps can send you the spreadsheet when it is finished so you can play around with it.

Thanks for the advice.

To date below are the payments I have made and the dates I paid on. They were all debit card payments which apparently incur a £10 charge as not done by DD but from now on they will be DD.

12-Sep £235.77 31-Oct £235.77 02-Dec £235.77
I do not know exactly but the setup and other fees came to about 280ish quid.

Hope this helps

TurnUpForTheBooks_2

Ah, so there was a setup fee - they really do like to have their cake and eat it don't they!

OK I was struggling with finding the last £200 on the total amount repayable so that explains that also

Now then, I see that when you say you have paid off £707.31, you have just added up the three payments you have made. Sadly, your current loan balance will not simply be £6,400 less the three payments, because as I said, you have been racking up interest at something over £3 a day (so in three months around £300[STRIKE]£100[/STRIKE]* or more has gone west in interest alone).

Did you pay the fees up front or were they simply added to the original loan making it around £6,680 on day one?

And what date was day one of the loan (the day you bought the car)? Was it 12th August, 12th September, or some other date?

Will the future DDs be coming out around the end of each month i.e. 31-Dec, then 31-Jan ?

*Correction: I meant to say £100 per month in interest so in three months that is £300 not £100, so you've made three modest steps forward (payments) and one big step (interest) back!

Let me have the answers to the above questions and we will pretty soon be ready to send you the spreadsheet. PM me if you prefer.

Super_Ram

TurnUpForTheBooks wrote: »

Ah, so there was a setup fee - they really do like to have their cake and eat it don't they!

OK I was struggling with finding the last £200 on the total amount repayable so that explains that also

Now then, I see that when you say you have paid off £707.31, you have just added up the three payments you have made. Sadly, your current loan balance will not simply be £6,400 less the three payments, because as I said, you have been racking up interest at something over £3 a day (so in three months around £300[STRIKE]£100[/STRIKE]* or more has gone west in interest alone).

Did you pay the fees up front or were they simply added to the original loan making it around £6,680 on day one?

And what date was day one of the loan (the day you bought the car)? Was it 12th August, 12th September, or some other date?

Will the future DDs be coming out around the end of each month i.e. 31-Dec, then 31-Jan ?

*Correction: I meant to say £100 per month in interest so in three months that is £300 not £100, so you've made three modest steps forward (payments) and one big step (interest) back!

Let me have the answers to the above questions and we will pretty soon be ready to send you the spreadsheet. PM me if you prefer.

The Loan officially started on the 12th August.

Going forward I will be paying them on the 28th of every month by DD apart from this month which will be the 20th due to Christmas.

Hope that helps.

Main reason I am asking is over the next year there is something I am saving for which is a fair chunk of money each month in savings and does not need to be saved for in a year. So what I am wondering is if I am better ploughing this money into the loan to pay it back early. At minimum from January I am talking about 500 extra a month

TurnUpForTheBooks_2

OK - the spreadsheet should answer your original question i.e. how much will you have to pay as a lump settlement in a year's time and how much interest will that save you compared to if you had let the loan run.

I can tell you now that in 12 months time, it will be costing you not £3 something a day in interest but nearer £2 per day. And in 24 months time it will have reduced further to about £1 a day interest.

I can also tell you that by this time next year you will already have paid around two thirds of all the interest. Very roughly, if you let the deal run its course, I reckon you will have incurred around £2,100 in interest in this deal (that's my best estimate and it depends on a few unknowns e.g. where the fees fit in). Next December you will be looking at already having paid around £1,400 in interest with about £700 interest still to go if you let it run.

I would still like to know the date you paid the setup fee - perhaps as a card payment, or perhaps you never paid it up front and it was simply added to what you borrowed?

Super_Ram

TurnUpForTheBooks wrote: »

OK - the spreadsheet should answer your original question i.e. how much will you have to pay as a lump settlement in a year's time and how much interest will that save you compared to if you had let the loan run.

I can tell you now that in 12 months time, it will be costing you not £3 something a day in interest but nearer £2 per day. And in 24 months time it will have reduced further to about £1 a day interest.

But first I need to know the date you paid the setup fee - perhaps as a card payment, or perhaps it was simply added to what you borrowed?

The setup fee was added to the loan and I did not pay an upfront fee

TurnUpForTheBooks_2

I am still not entirely sure I have got your loan completely sussed* but I think for the purposes of the original question, we are about there. Let's look at a few dates in the latter half of next year:

• On 28-10-2014 your 14th payment will be due. Even after you have made it, you will still owe around £4400. You will already have paid around £3.300 and if instead you now on that date pay all you owe you will save around £800 in future interest.
  
• On 28-11-2014 your 15th payment will be due. Even after you have made it, you will still owe around £4200. You will already have paid around £3500 odd and if instead you now on that date pay all you owe you will save around £700 odd in future interest.
  
• On 28-12-2014 your 16th payment will be due. Even after you have made it, you will still owe around £4000. You will already have paid around £3800 and if instead you now on that date pay all you owe you will save around £700 in future interest.
  
• On 28-01-2015 your 17th payment will be due. Even after you have made it, you will still owe nearly £3900. You will already have paid £4000 plus and if instead you now on that date pay all you owe you will save around £600 in future interest.
  
• On 28-02-2015 your 18th payment will be due. Even after you have made it, you will still owe around £3700. You will already have paid about £4250 and if instead you now on that date pay all you owe you will save around £500 in future interest.

NB All these estimates assume there is no penalty fee for settling the loan early !

What I neglected to say after having so much fun with the spreadsheet this afternoon was of course get rid of the loan as fast as you can. As you have said, the interest rate is appalling and if you have a minimum surplus of £500 a month after Christmas, then it is a no brainer, surely! If you pay £735.77 instead of £235.77 each month from January on, then you will have paid off the loan by the end of October 2014 and in total perhaps incurred only £900 interest in total for the loan (plus fees).

* 36 payments of £235.77 is of course less than the £8,828.49 Total repayable figure you mentioned at the beginning so I reckon with the underlying 19.8% pa interest rate you would if you kept the loan going end up paying something like the £8,723.49 that 36 x £235.77 would add up to. Strange that it is exactly £105 difference but let's not worry our heads over it.