Loan repayments - how interest and they are calculated

josephobrien2000

Hi

Loan repayments are based upon interest rate, amount you have loaned, and the time schedule you wish to repay.

if you google 'guardian loan calculator', this simple calculator can be used to provide a table or scheduled repayments:

Such schedules show that each periodic payment (say monthly) consists of a principal amount, and an amount of interest.
Effectively, you can see how interest is greatest at the beginning of the loan period but steadily decreases each month across the loan period.

I took a loan of £21,500 over 60 months at an interest rate of 6.1%. This worked well for me, and I am happy overall. But, I'm quite surprised by the way my loan company has presented the repayment schedule. They took the loan amount, stuck on top the entire interest over 60 months (£3500) and added the two together £25000. Now when looking at the repayment schedule, my payments come off the £25000, not the £21500. So after 19 monthly payments, the amount remaining is said to be £17,500 (effectively paying off £3500 interest and £4000 principal). But when looking at loan schedules, interest is spread throughout the term, and when using such calculators, at month 19, I should have £15,723 owing, not £17,500. There is a big difference here. It effects me if I wanted to pay off the loan early.

So what do people think of this? Have they not broken a rule here? Or is there some sort of loan option whereby you have staggered interest over the period, or, in my case lumped on top.
Thanks in advance...

khid2

I really hope someone can answer this as I am puzzled at my settlement figure for my car finance, I got the car in december with a 13% apr dam it!! I had to get a car quickly due to my previous being wrote off.

well i borrowed around £6800 they added a lump sum interest of around £2000 at the beginning of the agreement like you say so gives you total amount paid at the end, sorry cant remember exact figures.

well i requested my settlement figure in the hope i may be able to transfer to a 0% to find you cant do a balance transer on these agreements can only try and apply for money transfer.

sorry so my settlement figure is £6662 Ive paid what £100ish off my borrowed amount since december yet paid £600odd so how come my lump sum of interest at the begining was £2000 and ive had it 4 months odd and will be loosing £500 already if I was succesful that is for a money transfer card?????

Caz3121

josephobrien2000 wrote: »

I should have £15,723 owing, not £17,500. There is a big difference here. It effects me if I wanted to pay off the loan early.

£17,500 = what you have still to pay if you continue making the monthly payment as planned (includes capital + interest)
£15,723 = what you have remaining on the original loan if no further interest was being added - e.g. you were to ask to pay it off today (subject to the addition of any early redemption penalties)

£15,723 + interest to end of 60 months = £17,500

Caz3121

khid2 wrote: »

sorry so my settlement figure is £6662 Ive paid what £100ish off my borrowed amount since december yet paid £600odd so how come my lump sum of interest at the begining was £2000 and ive had it 4 months odd and will be loosing £500 already if I was succesful that is for a money transfer card?????

Does the settlement figure include any settlement fees (often 2 months interest) this would explain the difference in the settlement figure and the outstanding loan amount
If your loan was £6,800 over 4 years then after 3 payments the balance would be £6,470. The £192 difference if likely to be due to ERC and any odd days outside the full month

khid2

No theres no fees I checked, I think its purely interest paid already you just done realise in such little time how much you can loose!

i really hope to settle it somehow but ive been advised you cant balance transfer and I dont know if this is correct with all companies as MBNA advised my only option is money transfer which i didnt realise they did such big amounts on these cards but again did say cant gaurantee will get full amount asking for

bit stuck on what to do

Gaz83

khid2 wrote: »

I really hope someone can answer this as I am puzzled at my settlement figure for my car finance, I got the car in december with a 13% apr dam it!! I had to get a car quickly due to my previous being wrote off.

well i borrowed around £6800 they added a lump sum interest of around £2000 at the beginning of the agreement like you say so gives you total amount paid at the end, sorry cant remember exact figures.

well i requested my settlement figure in the hope i may be able to transfer to a 0% to find you cant do a balance transer on these agreements can only try and apply for money transfer.

sorry so my settlement figure is £6662 Ive paid what £100ish off my borrowed amount since december yet paid £600odd so how come my lump sum of interest at the begining was £2000 and ive had it 4 months odd and will be loosing £500 already if I was succesful that is for a money transfer card?????

It's difficult to work out as you don't provide exact figures.

But I'm going to work this out based on your "£100ish" being £150 and your repayments starting in January.

When you borrow £6,800 at 13% APR, this means that approximately 1.08333% is added on each month.

At the end of December your balance would have been £6,800 + £73.66 interest, so £6,873.66, then you pay £150, so the balance reduces to £6,723.66.

At the end of January it rises to £6,723.66 + 1.08333% of that, so £6,796.51, then you pay £150, so it falls to £6,646.51.

At the end of February it rises to £6,646.51 + 1.08333% of that, so £6,718.51, then you pay £150, so it falls to £6,568.51.

They can then add on 58 days' of interest, which would work out to be 0.0356% for every day, which is 2.065% interest, which is £135.69, giving a settlement figure of £6,704.20. Which isn't a kick in the teeth away from what you're saying, so giving I've based my calculations on two assumptions, sounds like it's correct.

That's how loans work.

Come back with exact figures and dates and it can be worked out more accurately.

CLAPTON

josephobrien2000 wrote: »

Hi

Loan repayments are based upon interest rate, amount you have loaned, and the time schedule you wish to repay.

if you google 'guardian loan calculator', this simple calculator can be used to provide a table or scheduled repayments:

Such schedules show that each periodic payment (say monthly) consists of a principal amount, and an amount of interest.
Effectively, you can see how interest is greatest at the beginning of the loan period but steadily decreases each month across the loan period.

well, yes, because at the beginning of the loan you owe more so the interest will obviously be more each month, than near the end of the loan, when you owe less, the interest is less

so amount of interest paid each month
=amount still outstanding x monthly interest rate
the more you owe , then the more the monthly interest exactly as you would expect

I took a loan of £21,500 over 60 months at an interest rate of 6.1%. This worked well for me, and I am happy overall. But, I'm quite surprised by the way my loan company has presented the repayment schedule. They took the loan amount, stuck on top the entire interest over 60 months (£3500) and added the two together £25000.

they way this is shown is a legal requirement of your government
so you can see the TOTAL you will pay if you let the loan run to completion : why wouldn't you want to know this?

Now when looking at the repayment schedule, my payments come off the £25000, not the £21500.

no, the repayment part of your monthly payment comes off the amount outstanding :

So after 19 monthly payments, the amount remaining is said to be £17,500 (effectively paying off £3500 interest and £4000 principal). But when looking at loan schedules, interest is spread throughout the term, and when using such calculators, at month 19, I should have £15,723 owing, not £17,500. There is a big difference here. It effects me if I wanted to pay off the loan early.

No it doesn't : if you paid early then you would get a 'rebate of the interest : again the presentation is a legal requirement.
The actual interest is ALWAYS worked out on the balance remaining

So what do people think of this? Have they not broken a rule here? Or is there some sort of loan option whereby you have staggered interest over the period, or, in my case lumped on top.
Thanks in advance...

They have done was is sensible and logical and legal and you only pay interest on the amount outstanding at the time.

josephobrien2000

Caz3121 wrote: »

£17,500 = what you have still to pay if you continue making the monthly payment as planned (includes capital + interest)
£15,723 = what you have remaining on the original loan if no further interest was being added - e.g. you were to ask to pay it off today (subject to the addition of any early redemption penalties)

£15,723 + interest to end of 60 months = £17,500

Thank you Caz3121, very kind of you to reply, and your answer was reassuring.

josephobrien2000

CLAPTON wrote: »

well, yes, because at the beginning of the loan you owe more so the interest will obviously be more each month, than near the end of the loan, when you owe less, the interest is less

so amount of interest paid each month
=amount still outstanding x monthly interest rate
the more you owe , then the more the monthly interest exactly as you would expect



they way this is shown is a legal requirement of your government
so you can see the TOTAL you will pay if you let the loan run to completion : why wouldn't you want to know this?


no, the repayment part of your monthly payment comes off the amount outstanding :



No it doesn't : if you paid early then you would get a 'rebate of the interest : again the presentation is a legal requirement.
The actual interest is ALWAYS worked out on the balance remaining



They have done was is sensible and logical and legal and you only pay interest on the amount outstanding at the time.

Thanks Clapton. I can see your point.

fresvinog

Were you aware of the other fees aside from the settlement fee?(i.e interest rate, establishment fee, monthly handling fee or processing fee)

There might be additional payments that you were not aware of . You can review your contract or if so you can always contact the credit ombudsman.