Early repayment

pachol82

Looking for some guidance. I have just contacted Bamboo Loans for an early repayment figure. I borrowed £5000 for five years at 69.9% (yes I know, but I had no choice at the time - I do now!) 16 months ago and have repaid 16 x £243 payments. I have just received an early repayment figure which is £5,152.

It seems ridiculous to me that I have repaid £3,888 and still owe more than I borrowed! How can I check whether the figure us correct?

[Deleted User]

You can calculate it tracking the daily interest.

The figure looks correct, as you've paid very little of the capital, and they have added on two months as an early settlement fee.

Get is cleared as soon as possible. You'll save yourself 5k if you can clear it now.

BoGoF

Are you sure your figures of APR and term are correct?

£5000 over 5 years at 69.9% APR should mean monthly repayments of £301.

foxy-stoat

The monthly interest on month 1 was around £290 - but your monthly repayments are £243. Doesnt seem correct as your monthly repayment wont cover the interest.

TrickyDicky101

The APR is 69.9% but the periodic rate for determining the monthly payment is (1+69.9%)^(1/12)-1 and not just 69.9%/12.

The figures the OP quoted are correct re monthly repayments of £243 over a 60 month term.

I make the settlement to be just over £5006 but that will depend on the exact timing of when the settlement was requested and the accrued interest up to that point.

BoGoF

TrickyDicky101 wrote: »

The APR is 69.9% but the periodic rate for determining the monthly payment is (1+69.9%)^(1/12)-1 and not just 69.9%/12.

The figures the OP quoted are correct re monthly repayments of £243 over a 60 month term.

I make the settlement to be just over £5006 but that will depend on the exact timing of when the settlement was requested and the accrued interest up to that point.

Not using any repayment calculator that I use.

Borrowing £5000 over 5 years at 69.9% APR shows total repayable £18,080 so £301 per month.

Not saying I am right but trying to understand why wrong.

TrickyDicky101

Loans repayments are calculated using the annuity formula (which you can Google for lots of examples). The interest rate input for the annuity formula is the periodic rate - which in the case of a loan with monthly repayments is the monthly rate.

The APR is a compounded annualised rate, so you need to decompound (as I indicated in my reply above).

You then just need to slot the amounts in:

Loan repayment = (Periodic Rate * Amount Borrowed)/(1 - (1+Periodic Rate)^-Number of repayments)

Periodic rate is 4.516%, Amount Borrowed is £5k, Number of Repayments is 60 (ie number of months).

If instead you use the APR divided by 12 (and thus not actually decompounded) in the formula above, you end up with £301 payments per month.

BoGoF

Well that doesn't explain why when I plug my recent loan into the same calculator that it gives the exact same total repayable and monthly repayments.

TrickyDicky101

BoGoF wrote: »

Well that doesn't explain why when I plug my recent loan into the same calculator that it gives the exact same total repayable and monthly repayments.

I would presume that is because the rate you are plugging in is not the APR (unless the loan only requires annual repayments in which case APR = periodic rate). It may be the case that you've been told it's the APR when really it isn't.

BoGoF

So using your method, what are my monthly repayments on £8000 over 48 months at 2.9% APR?

TrickyDicky101

BoGoF wrote: »

So using your method, what are my monthly repayments on £8000 over 48 months at 2.9% APR?

£176.59

But this is a poor example to show the difference between periodic and APR because the rate is so low - if you use 2.9% divided by 12 then the calculation is £176.72.

The difference only becomes readily apparent as the rate increases (eg to Amigo/payday lender rates) - and this is because the effect of compounding increases.