Confused about interest payment

unstoppable6t2

Hi

I have an mbna money transfer offer at the moment with 0% fee and 3.9% interest per annum for 36 months. If I borrow 10k, will I pay 3.9% interest (I.e. £390) on the full 10k every year spread over 12 months (I.e. 390/12=32.50 per month on top of monthly minimum payment), or £390 in total interest over the 36 month period?

Thanks. 

Dazed_and_C0nfused

Isn't it 3.9% on £10,000 in month 1 (but only 30 or 31/365ths)

Then 3.9% on whatever the balance is in month 2 (again 30 or 31/365ths)

And so on.

So month 1 has the highest interest charge and it gradually reduces each month as more capital is repaid?

[Deleted User]

unstoppable6t2 said:

Hi

I have an mbna money transfer offer at the moment with 0% fee and 3.9% interest per annum for 36 months. If I borrow 10k, will I pay 3.9% interest (I.e. £390) on the full 10k every year spread over 12 months (I.e. 390/12=32.50 per month on top of monthly minimum payment), or £390 in total interest over the 36 month period?

Thanks. 

Neither 

Interest is calculated daily on the outstanding balance. So the total interest depends on how quickly you repay the capital..

 

unstoppable6t2

Thanks. Could you please help me verify the following calculations? I've just calculated first 2 months to make sure I understand this correctly:

Money transfer amount: £10,000

1st month's payment based on 1% minimum payment and 3.9% interest per annum:
1% of remaining debt i.e. £10,000 = £100
Interest in month 1 = 3.9% of £10,000, divided by 12 = £32.50
Month 1 payment = £100 + £32.50 = £132.50
Remaining debt = £10,000 - £100 = £9900

2nd month's payment based on 1% minimum payment and 3.9% interest per annum:
1% of remaining debt i.e. £9900 = £99
Interest in month 2 = 3.9% of £9900, divided by 12 = £32.18
Month 2 payment = £99 + £32.18 = £131.18
Remaining debt = £9900 - £99 = £9801

Many thanks!

molerat

Pretty much ......

But .....

The £10K will still be accruing interest after the statement date until the payment is credited to the account so the second and subsequent month's interest will be higher - it is charged on the daily outstanding balance between statements.  To reduce the amount of interest you could pay the minimum by bank transfer as soon as you get the bill and not use a DD.  Read the card T&Cs to find out what will happen if you have a DD set up as a backstop, just in case you forget to pay, and make a payment early.

Brie

And no - if you are paying 1% you are paying 1% NOT 1% plus interest.  

So month 1 
1% of remaining debt i.e. £10,000 = £100
Interest in month 1 = 3.9% of £10,000, divided by 12 = £32.50
Month 1 payment = £100 
Remaining debt = £10,000 - £100 + 32.50 = £9932.50

If you pop the numbers into a calculator you will find that after 36 months you will have paid a  total of about £3205 of which about £1041 is interest. 

That leaves you with £7836 to pay off in month 37.  Hopefully by transferring to another BT perhaps.

If however you paid £295 a month ever month for 36 months your end balance will be zero.

[Deleted User]

Brie said:

And no - if you are paying 1% you are paying 1% NOT 1% plus interest.  

The lowest minimum will always be 1% plus fees and interest though.

molerat

They will be paying 1% plus interest / charges.  It is not allowed for minimums to be set purely at a %.

Brie

My apologies - I was wrong!  Well that's never ever ever happened before!!!!

So yes - first month you pay £132.50 and have £9900 left to pay.
second month you pay 131.18 & have £9801 left to pay.

At the end of 36 months you have paid about £987 in interest plus about £3036 in principle meaning you still have £6964 left to pay.

But it's still true that if you pay £295 every month you will clear the whole balance in the 36 months