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• FIRST POST
• Tozom
• By Tozom 10th Jul 18, 9:29 PM
• 40Posts
• 0Thanks
Tozom
Looking for someone to help me with the maths of proving the benefit of paying off a higher interest loan. Father in law got us a loan for 5.8% after buying a house but now my credit score has improved... I think I know ill be better off but i can't get my head round how to calculate it!!

Existing loan
£13,000
5.8%
£249 per month
£14,940 total to pay over 5 years

Ive paid 9 payments of £249x9=£2,241 which, if i took that off my original loan amount leaves me with £10,759. To repay the loan early, the balance is £11,377, so the loan if i repay would have cost me the difference of £618... right!?

Ok so proposed loan would be 2.8% and i can take either 4 or 5 years. 4 means repaying 3 months earlier (already done 9) or 5 would extend it but it has a very attractive reduced monthly payment.

4 years - monthly £250.64 - £12,030.72
5 years - monthly £203.24 - £12,194.40

Am I still saving money by taking out the 5 year new loan compared to sticking with the existing 5.8%. If so, how do i work out how much!? Help appreciated!
Page 1
• venison
• By venison 10th Jul 18, 9:44 PM
• 2,343 Posts
• 2,569 Thanks
venison
You have to remember 2 things 1) your credit "score" means nothing its just a made up number and 2) you are not guaranteed to get the advertised rate of 2.8% as only 51% of those who are successful will get that rate, you might you might not.
You say FIL "got you a loan" was it in his name?
Former Board Guide
• Tozom
• By Tozom 10th Jul 18, 9:57 PM
• 40 Posts
• 0 Thanks
Tozom
You have to remember 2 things 1) your credit "score" means nothing its just a made up number and 2) you are not guaranteed to get the advertised rate of 2.8% as only 51% of those who are successful will get that rate, you might you might not.
You say FIL "got you a loan" was it in his name?
Originally posted by venison
Yes I understand that and yes it was.
• DrEskimo
• By DrEskimo 10th Jul 18, 10:35 PM
• 223 Posts
• 150 Thanks
DrEskimo
Think I've done the maths for you.

So the £13k loan @ 5.8% would cost you £1,940 if you ran it for the entire 5-years.
If you settle the loan in 9-months, you would have paid £618 in interest.

The new loan of £11,377 @ 2.8% to settle the previous loan will cost you £817.54 in interest over 5-yrs. Adding the initial £618 you paid on the first loan, that's a total of ~£1,435 in interest over 5yrs 9months.

So it would be ~£505 cheaper to get a new loan on the settlement at 9months @ 2.8% over 5-years, than it would be to continue to run the loan at 5.8% over the next 4yrs 3months.

Although why not maintain the same payment on the 2.8% and get it over 4-years? That will cost just £653.76 in interest, which added to the initial interest you have paid is a total of £1,271. That's £669 cheaper, and you will have paid off the debt 3-months earlier, at 4yrs 9months.

I might have missed something or miscalculated somewhere, so anyone feel free to correct me...!

As above, this all, of course, assumes you can get the 2.8% loan...
• Tozom
• By Tozom 10th Jul 18, 10:50 PM
• 40 Posts
• 0 Thanks
Tozom
Thanks for that.. thats along the same lines as i was looking at. Is there another thing to add though, because currently paying £249 a month and on the new loan it could be £203.24 which is a difference of £45.76... aren't I saving that each month for 60mths too?!
Last edited by Tozom; 10-07-2018 at 10:54 PM.
• DrEskimo
• By DrEskimo 10th Jul 18, 11:02 PM
• 223 Posts
• 150 Thanks
DrEskimo
Thanks for that.. thats along the same lines as i was looking at. Is there another thing to add though, because currently paying £249 a month and on the new loan it could be £203.24 which is a difference of £45.76... aren't I saving that each month for 6mths too?!
Originally posted by Tozom
Not quite, you are not saving that monthly difference, you are borrowing it.

Although you will be saving £46.76 for 48months (48*£46.76 = £2,244.48), you are also spending £203 for an additional 12 months more (12*£203 = £2438.88), so the net result is it's costing you an extra £194.40, basically the difference in the cost of interest between the 4 and 5-year loan...(there or there abouts anyway...!).
• foxy-stoat
• 11th Jul 18, 12:04 PM
• 2,653 Posts
• 1,530 Thanks
foxy-stoat
Ive paid 9 payments of £249x9=£2,241 which, if i took that off my original loan amount leaves me with £10,759. To repay the loan early, the balance is £11,377, so the loan if i repay would have cost me the difference of £618... right!?
Originally posted by Tozom
Errrrr no, the 9 payments totally £2241 include interest - so you would of paid £ 1708.46 off the £13,000 capital. Add 2 months of interest for the ERC and you should get to a settlement figure but ask the lender for the figure.

You will unlikely get the lowest rate loan for debt consolidation though but let us know how you get on.
• Tozom
• By Tozom 14th Jul 18, 8:38 AM
• 40 Posts
• 0 Thanks
Tozom
Errrrr no, the 9 payments totally £2241 include interest - so you would of paid £ 1708.46 off the £13,000 capital. Add 2 months of interest for the ERC and you should get to a settlement figure but ask the lender for the figure.

You will unlikely get the lowest rate loan for debt consolidation though but let us know how you get on.
Originally posted by foxy-stoat
The £11,377 figure is the one the lender has given already if we pay early by end of Aug. So would my calculation of how much interest I have paid already be accurate?
• Thrugelmir
• 14th Jul 18, 10:46 AM
• 59,781 Posts
• 53,121 Thanks
Thrugelmir
Ive paid 9 payments of £249x9=£2,241 which, if i took that off my original loan amount leaves me with £10,759. To repay the loan early, the balance is £11,377, so the loan if i repay would have cost me the difference of £618... right!?
Originally posted by Tozom
No. As interest is calculated and charged monthly on the outstanding balance. Your assumption is that the interest is spread evenly over the term of the loan. Every month you will pay less interest and more capital as the outstanding balance reduces.
Financial disasters happen when the last person who can remember what went wrong last time has left the building.
• Tozom
• By Tozom 14th Jul 18, 4:45 PM
• 40 Posts
• 0 Thanks
Tozom
No. As interest is calculated and charged monthly on the outstanding balance. Your assumption is that the interest is spread evenly over the term of the loan. Every month you will pay less interest and more capital as the outstanding balance reduces.
Originally posted by Thrugelmir
HOw can i work out how much the loan would have cost me in interest and fees in that case? The remaining balance figure I gave is what the lender has given to settle early. I don't mind how much of it was fee and ERC, just how much its cost me.
• DrEskimo
• By DrEskimo 14th Jul 18, 10:09 PM
• 223 Posts
• 150 Thanks
DrEskimo
I think the £618 is correct, as it's based on the settlement figure. The £10,749 figure you quoted was incorrect, but I just ignored that...!

You can use this calculator to check: http://www.financecalcs.co.uk/Calcs/Settlement.php

Amount paid after 9months = £2,241
Settlement = £11,376.30

That totals £13,617.3. Subtract that from the initial amount borrowed (£13,000) and you can see you have paid £617.3 in interest if you settled the loan at 9months.

Have I got that right...?
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