Have I made a mistake?

Tranquil

Hello,

I took out a £10,000 loan with 10.9% APR in February 2018 in which I was paying £286.16 each month for 42 months. From my calculations, this means I would have had 21 payments left.

I took out a £6000 loan with 3.4% APR, paying £269.65 for 23 months from August. I paid off the first loan using this money. The settlement figure for the 1st loan was £6280.88 in which included a £112.41 early repayment fee and interest. I paid the difference between the 2nd loan and repayment figure from my own money.

I thought this would allow me to save money on the loan, however I am now thinking if I miscalculated? It feels a bit too complicated for me to work out. Would anyone have any advice?!

Man_From_Bath

if you've done it why worry ? to late now.

foxy-stoat

Tranquil wrote: »

Hello,

I took out a £10,000 loan with 10.9% APR in February 2018 in which I was paying £286.16 each month for 42 months. From my calculations, this means I would have had 21 payments left.

I took out a £6000 loan with 3.4% APR, paying £269.65 for 23 months from August. I paid off the first loan using this money. The settlement figure for the 1st loan was £6280.88 in which included a £112.41 early repayment fee and interest. I paid the difference between the 2nd loan and repayment figure from my own money.

I thought this would allow me to save money on the loan, however I am now thinking if I miscalculated? It feels a bit too complicated for me to work out. Would anyone have any advice?!

Second loan will cost you £6201.95 over the next 23 months + £269.65 you have had to pay = £6471.60.

First loan would of cost you £6009.36 over the next 21 months if you had kept on paying it.

Only advice is to keep paying the second loan.

enthusiasticsaver

Tranquil wrote: »

Hello,

I took out a £10,000 loan with 10.9% APR in February 2018 in which I was paying £286.16 each month for 42 months. From my calculations, this means I would have had 21 payments left.

I took out a £6000 loan with 3.4% APR, paying £269.65 for 23 months from August. I paid off the first loan using this money. The settlement figure for the 1st loan was £6280.88 in which included a £112.41 early repayment fee and interest. I paid the difference between the 2nd loan and repayment figure from my own money.

I thought this would allow me to save money on the loan, however I am now thinking if I miscalculated? It feels a bit too complicated for me to work out. Would anyone have any advice?!

Surely if you took the loan out in February and started repaying it in March 2018 you have only made 17 payments including this month? That means there is 25 payments to go not 21 making the amount to repay £7154? The early settlement figure though was only £6280 so presumably you had made lump sum repayments over the 17 months?

Logic tells me you did not do the wrong thing as the interest rate on the first loan was 10.9% and the interest rate on the second is 3.4%.

Tranquil

Thanks - I made the the 1st payment in February 2018 and have paid the same amount each month, with no lump sum repayments. My last payment was July 2019. That means I would have had 24 payments left for the 1st loan if I had kept it? I’m thinking this is where my maths has gone wrong!! So that makes more sense now

TriathNanEilean

Relax, you did the right thing!

Comparing 2 numbers - the settlement amount on loan 1 with the total amount due over the lifetime of loan 2 - it might seem like you didn't achieve much (getting the number of months left right would help of course).

But there is an extra thing to add to the cost of loan 1 - the interest you would have paid over the remaining months of the loan. At 10.9%. Just over £700 if it was 24 months still to run.


So, nice result.

Ben8282

You have done the right thing and will save some money. I make it £553.48 saving based on the 24 month/23 month figures although it is slightly unusual to have made the first repayment in the month that you took out the loan and to have paid the July payment as well. If the July 2019 payment has already been made, then the payment date must be before 12th of the month yet on a loan taken out in February 2018 you made a payment that same month (ie before 12th Feb)?
The term of 23 months for the second loan is a rather unusual term for a loan. As you made a mistake with the number of remaining payments due on the 1st loan, can you perhaps double check that there really are only 23 repayments due on the second loan?

enthusiasticsaver

That makes more sense now you have the number of repayments correct.

Loan 1 if it had been left to run for 42 months would have cost you £12018.72 so £2018.72 in interest. Easy calculation just 42 x £286.16.

As you opted to terminate it early you made 18 payments at £286.16 which is £5150.88 plus the ERC of £112.41 and the difference between the settlement figure and your repayments to date must be interest over the 18 months you held it. (Loan interest is always higher in the first few years obviously as the balance is higher.) So I calculate interest paid for that period was £1017.59.


Loan 2 is £6000 over 23 months at £269.65 monthly so £6201.95 in total £6000 capital and £201.95 in interest.


So under scenario 1 if you had let loan 1 run its course you would have paid £2018.72 in interest.


Changing from loan 1 to loan 2 has cost you £1017.59 interest on loan 1 and the early repayment charge of £112.41 plus the interest of £201.95 on loan 2 so a total of £1331.95.



The difference between scenario 1 and scenario 2 is £686.77 so that is how much you saved by moving from the 10.9% loan to a 3.4% one.


Hope I have not confused you further.

Tranquil

Ben8282 wrote: »

You have done the right thing and will save some money. I make it £553.48 saving based on the 24 month/23 month figures although it is slightly unusual to have made the first repayment in the month that you took out the loan and to have paid the July payment as well. If the July 2019 payment has already been made, then the payment date must be before 12th of the month yet on a loan taken out in February 2018 you made a payment that same month (ie before 12th Feb)?
The term of 23 months for the second loan is a rather unusual term for a loan. As you made a mistake with the number of remaining payments due on the 1st loan, can you perhaps double check that there really are only 23 repayments due on the second loan?

Thank you! That makes sense. Yeah I made the first payment late February then requested my payments to be made at the beginning of the month (so that is why I already paid July). It is definitely 23 months - I am not sure why this is thought. Thanks for your help.

Tranquil

enthusiasticsaver wrote: »

That makes more sense now you have the number of repayments correct.

Loan 1 if it had been left to run for 42 months would have cost you £12018.72 so £2018.72 in interest. Easy calculation just 42 x £286.16.

As you opted to terminate it early you made 18 payments at £286.16 which is £5150.88 plus the ERC of £112.41 and the difference between the settlement figure and your repayments to date must be interest over the 18 months you held it. (Loan interest is always higher in the first few years obviously as the balance is higher.) So I calculate interest paid for that period was £1017.59.


Loan 2 is £6000 over 23 months at £269.65 monthly so £6201.95 in total £6000 capital and £201.95 in interest.


So under scenario 1 if you had let loan 1 run its course you would have paid £2018.72 in interest.


Changing from loan 1 to loan 2 has cost you £1017.59 interest on loan 1 and the early repayment charge of £112.41 plus the interest of £201.95 on loan 2 so a total of £1331.95.



The difference between scenario 1 and scenario 2 is £686.77 so that is how much you saved by moving from the 10.9% loan to a 3.4% one.


Hope I have not confused you further.

That's great! Thanks for your help and for doing all the calculations for me! I'm glad I will indeed save money as I was beginning to doubt that!