Are my calculations wrong?

JohnSwift10

Maths was never my strong point.

If I calculate hire purchase on £30,000 at 5.7% annual interest rate over 5 years I get a total payment of £34,548.50 with £4548.50 being interest.

=PMT(C4, D4, -A4) with C4 =.48% D4 = 60 A4 = 30000 which gives a £575.81 monthly payment.

I have £30,000 in a savings account earning 3.9% per year and this gives me about £5850 interest for 5 years.

So why am I getting more interest with a lesser interest rate?

It seems that I am better off paying the HP over 5 years and leaving the £30,000 in the savings account than paying £30,000 cash and having £30,000 less savings than having HP. 

Vitor

Think root of OPs confusion lies in comparing compound interest (on savings) with amortised interest (on a loan), as if they are equivalent; on the loan, each month you pay interest on a shrinking loan balance.

Compound interest formula  =FV(3.9%, 5, 0, -30000)
£36,854.75, Compound interest earned = £6,854.75

Amortised loan formula =PMT(5.7%/12, 60, -30000)
£575.81 monthly payment
Total interest paid on loan is 575.81 * 60 - 30000 = £4,548.50

Cisco001

JohnSwift10 said:

Maths was never my strong point.

If I calculate hire purchase on £30,000 at 5.7% annual interest rate over 5 years I get a total payment of £34,548.50 with £4548.50 being interest.

=PMT(C4, D4, -A4) with C4 =.48% D4 = 60 A4 = 30000 which gives a £575.81 monthly payment.

I have £30,000 in a savings account earning 3.9% per year and this gives me about £5850 interest for 5 years.

So why am I getting more interest with a lesser interest rate?

It seems that I am better off paying the HP over 5 years and leaving the £30,000 in the savings account than paying £30,000 cash and having £30,000 less savings than having HP. 

Don't forget you pay tax on interest...

DullGreyGuy

JohnSwift10 said:

Maths was never my strong point.

If I calculate hire purchase on £30,000 at 5.7% annual interest rate over 5 years I get a total payment of £34,548.50 with £4548.50 being interest.

=PMT(C4, D4, -A4) with C4 =.48% D4 = 60 A4 = 30000 which gives a £575.81 monthly payment.

I have £30,000 in a savings account earning 3.9% per year and this gives me about £5850 interest for 5 years.

So why am I getting more interest with a lesser interest rate?

It seems that I am better off paying the HP over 5 years and leaving the £30,000 in the savings account than paying £30,000 cash and having £30,000 less savings than having HP. 

The loan is only £30,000 on day one, as soon as you've made a repayment the loan is below £30,000 and so the interest incurred until the next payment is made is reduced. This continues to the end of the loan so at the beginning the payment is mainly covering interest but at the end isnt mainly repaying the capital. 

For your savings you are doing the exact opposite, you have compound interest so you not only get interest on the original £30k but interest on your interest 

The bit you are missing though is where are the £574 coming from? If you are using the savings to pay off the debt then you won't achieve that return and if you dont get a loan you need to account for the extra £574 you would be not spending and could be getting interest on.

As others have mentioned, need to consider tax on interest received too