what is actual loan rate?

henryp_2

I have been offered a loan of £10,000 with 60 monthly repayments. The rate is stated as 8.2%. Each month I will pay back the same amount of principle £167 and a decreasing amount of interest. My first payment is £236 (£167+£69 interest). The 30th payment is £201 (£167 + £34) and the final payment is £168 (£167+£1 interest). (I have rounded down the amounts.) Most of the loans that I have seen have a fixed constant payment amount over the whole period rather than this decreasing amount. Altogether I will pay £12012 back after 5 years.

Am I actually paying the 8.2% or is it much more?

Thanks.

redpete

Looks to be the correct numbers for 8.2%. Never seen a loan repaid like that though.

David301

Ive got a loan like that, in my case i have a direct debit for the principle every month, and a second direct debit for the interest on the same day. The interest payment decreases by a bit each time. I never thought too much about it, I was happy with the amount I wanted to borrow and happy with the amount they said would be paid back at the end.

somethingcorporate

Interesting idea, who is the lender?

redpete

I reckon you would end up paying £139 less over the life of the loan with the varying repayments vs a 'normal' constant repayment loan (approx £204 per month).

The downside is that it's only at the very end of the loan that the running total of repayments is in your favour.

paddyrg

It's actually a good thing, in terms of the overall cost.

Even better again would be if you paid £236 EVERY month, as you'd be chewing through the principal increasingly fast too, saving you even more interest :-)