actuarial method for loan repayments

Denis222

Hi,
I hope you can help me with this technical question:
For a loan of £36,000, APR 2.9, 170 months payment, all loan calculator, including the moneysavingexpert say there will be £258 per month payment and the total interest will be £7,942.
The lender however says it will be £263.42 per month payments with a total interest of £8,781.40.
I asked them why the difference and they wrote "Our interest is calculated using the actuarial method."
As far as I know with actuarial method the total interest will be even less, but I am not sure. Any technical insight into this is most appreciated.
Best
Denis

jonesMUFCforever

Any set up costs or arrangement fees?

Denis222

No, nothing in the contract about fees and there was no talking of fees either. The only other thing is that payments start 9 months after the Advanced Day (day of receiving the goods). Not sure if this has anything to do with that.
In a 170 months duration of payment, an extra less-than-£1000 (difference in total insurance) is tolerable for me. However I am curious to know how they arrived on such figures. I doubt it that the operator in their call centre could provide a meaningful answer. So thought asking experts here.
 

HobgoblinBT

What is the term of the loan including the repayment holiday?  170 months or 179 months?  You mention a repayment holiday of 9 months, but this period will accrue interest as well so there will be 9 monthly repayments less than the term of the loan.  So are there 170 monthly repayments, or 161?  Recalculate if applicable.  Does this explain the difference?  Hope this helps.

[Deleted User]

Denis222 said:

The only other thing is that payments start 9 months after the Advanced Day (day of receiving the goods). Not sure if this has anything to do with that.
 

Yep, that has a lot to do with everything.  It's a 179 month loan but worse, as you're not making any payments for the first nine of those months - the really expensive ones.

On the face of it, the lender's figures seem far closer than yours. 

Denis222

Many thanks for your help all. The lender came back to my inquiry and yes it has to do with that 9 months no payment at the start. They include the interest of that period in the calculation of the payment period of 170 months.