APR calculation

CJewell

2017 Had a loan of £8000 from our Community Bank.... very low APR (6.7%)
Monthly payment £190, interest around £30.

2019 Refinanced with a further £2500

Recently discovered that out of my £204 monthly payment, I am paying on average £130 to £140 in interest!! 

Can't get satisfactory answers from the Community Bank.

But can they apply the new rate of interest to what was remaining of the original loan? It seems very high and I would appreciate any help.

Thank you

[Deleted User]

If you refinanced the expensive 6.7% debt, it would go to whatever the rate on the new loan is.  If your new borrowing was additional, the original loan will stay under the original terms. What rate was the new loan at?

Interest is not static each month, it will reduce as the capital drops.

molerat

All the answers will be on the loan agreement they will have supplied you with.  I suspect you did actually "refinance" the outstanding balance and added an extra £2500 to it at whatever rate was applicable at the time. 

To get a £190 payment on £8000 at 6.9% APR would mean the loan was over 48 months and the initial interest was around £44 pm decreasing each month, interest would be at £30 around month 18.

So what APR is on the new loan ?

CJewell

Yes, it was re-financed apparently. I wish I'd not done that now however!! The old balance was at £4581.62 plus the additional £2500 = £7081.52. APR stated as 26.8%. I've been caught out by what I thought was the best option, in a Community Bank!! I'll be paying this forever.....

[Deleted User]

See if you can get another loan to consolidate it it, but this time go for a lower APR, rather than a higher one.

However, lending criteria are much tighter than in 2019, so keep your expectations low. Either way, throw as much as you can at the loan to reduce the capital and pay less interest,

CJewell

Can I just pay it off by asking for a settlement figure? Or will they just bang all the interest they'll lose on top of that too? 

[Deleted User]

They're not allowed to 'bang all the interest on top', apart from two months early settlement.

Interest is charged daily, so the sooner you pay it off, the less interest you pay.

CJewell

I really appreciate your help on this. I obviously signed the new agreement, but was blinded by the original great deal, the glowing reports on a BBC programme on Community Banks and the lack of clarity from the staff member when I refinanced. My current dealings with them on this subject lead me to have to contact their CEO directly for an explanation, who has openly admitted in a brief email that she has very little knowledge on the way APR works and is seeking help before answering my questions. I'm still waiting!!! I think my best option would be to settle..... so thank you.