Loan payment confusion :(

yogiboby

Hello,

Myself and my girlfriend took out a loan with Barclays for £13,000 with an APR of 4.9%

We currently pay £244 a month which over 60 months will result in a total payment of £14,640. Resulting in £1,640 in interest. If I am not mistaken this means we are paying 12.13% interest?

I'm going to be honest I thought we would be paying 4.9% on the £13,000 so I feel a bit stupid for not questioning it before signing the agreement. Meh.

If anyone could help explain, as simple as possible why we are paying 12% rather than 4.9% that'd be great. It's annoying as well because the person in the branch who dealt with us seemed to make a huge deal about us getting a low "4.9% interest rate"

Cheers

[Deleted User]

4.9% is the APR. The A means annual. Therefore a 5 year loan will cost more than a 1 year loan.

Interest is charged daily, on the declining balance.

yogiboby

I see, so the total interest can vary depending on how fast/slow the loan is paid off. But based on us sticking to the same monthly payment over 60 months they'll make 12% out of us? We best start making bigger payments!

Clive_Woody

yogiboby wrote: »

I see, so the total interest can vary depending on how fast/slow the loan is paid off. But based on us sticking to the same monthly payment over 60 months they'll make 12% out of us? We best start making bigger payments!

APR is how much interest you pay each year, i.e. you pay 4.9% interest each year on the remaining balance due.

You can indeed pay less interest by repaying the loan quicker.

bearcat16

Don't get too indignant about it, because nobody has misled you, and 4.9% APR is a decent, competitive rate.

4.9 is the annualised rate, so you could say it's like (4.9 / 365) = 0.0134% per day.

So if the loan balance is £13,000 in the first month, you'll pay (13,000 x 0.0134%) = £1.75 per day in interest for the first month, which works out to about £52 per month.

Say after a few years the loan balance is £6,000, you'll pay about £0.80 per day, so about £24 per month.

The point is, the amount of interest charged is calculated daily, so will change as time goes on.

But as I mentioned earlier, don't get too upset because 4.9% really is a low rate. You haven't been ripped off.

yogiboby

Thanks for each reply, not going to keep me up at night now and I feel much better. ��

MEM62

yogiboby wrote: »

I see, so the total interest can vary depending on how fast/slow the loan is paid off. But based on us sticking to the same monthly payment over 60 months they'll make 12% out of us? We best start making bigger payments!

They will charge you 4.9% per year interest as per the agreement that you signed. Over the lifetime of the loan the overall interest will, of course be more than 4.9% as the loan is over more than one year.

Now go work out how much interest you will pay over the lifetime of your mortgage!!