Confused over interest when burrowing

Very_Poor

This is what I thought a bank told me:

The interest depends on the number of years I pay back. So if lets say it's 10% for one year, it's 50% if I pay back over 5 years. Is that right?

wacko911

Someone smarter will be along shortly, in the mean time...

If its 10% APR then its a little more complicated, year one you pay 10% of the total loan, year 2 you pay 10% of whats left etc.. But actually interest is calculated daily or monthly so everytime you make a payment then the total amount owed is less, and interest is less.

As a rule of thumb, calculate what you have done (APR x Years in your case 50%) and divide by 2, and that will be around the amount of interest you will pay or use this handy tool...

http://www.moneymadeclear.fsa.gov.uk/tools/loan_calculator.html

Very_Poor

wacko911 wrote: »

Someone smarter will be along shortly, in the mean time...

If its 10% APR then its a little more complicated, year one you pay 10% of the total loan, year 2 you pay 10% of whats left etc.. But actually interest is calculated daily or monthly so everytime you make a payment then the total amount owed is less, and interest is less.

As a rule of thumb, calculate what you have done (APR x Years in your case 50%) and divide by 2, and that will be around the amount of interest you will pay or use this handy tool...

http://www.moneymadeclear.fsa.gov.uk/tools/loan_calculator.html

Thanks.

More than one bank told me it would increase each year by itself. :S But when I applied it to the sum on the barclays page it didn't work out. Nor those the rule of thumb but it's closer.

jonesMUFCforever

Interest will increase each year IF YOU DO NOT MAKE THE REPAYMENTS otherwise it will reduce on a loan year by year.

Butlers1982

If you pay a loan back early, then you will be hit with redemption penalties. Loans are £25,500 are charged USUALLY at:

6% if paid off within 2 years
4% within first 4 years
2% within first 6 years.

Thats the percentage of the balance that will be added when paying it off early.

Very_Poor

Mine is a career development loan (with APR 12.9%). The interest is fixed. I should have everything explained in the paperwork but I just wondered beforehand. I swear I was told it increases by the number of years I pay off. :S So if it's 5 years, it increases by a magnitude of 5.

jonesMUFCforever

Career development loans are structured differently to personal loans in that you are advanced all/some of the monies now but you do not start repaying until some date in the future.
So in that sense what the bank are telling you is correct ie for every £1000 you borrow you will be charged approximately £129 in interest.
So if you make no repayments this year then next year you will be charged interest on £1000 + £129 and so on.

I hope that is clear.

Very_Poor

I meant the interest rate is increased by a magnitude of 5, is that correct?

jonesMUFCforever

No!
Tell us how much you have borrowed and the terms of the loan and I'll try to work out some figures for you.
I need to know how long before you have to start repaying.