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Mathematicians Needed - Help with Credit Agreement Figures


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Guest suziedarkness

Hello all you clever bods, I was wondering if anyone out there could explain a couple of things to me regarding calculations on a Credit Agreement.

 

Firstly, what is the difference between APR and interest rate?

 

How are these calculated?

 

If you had a loan of £6295.00 over 60 months at an APR 16.5%, interest rate 14.14% pa, how much would you calculate the repayments to be?

 

I am really confused as I am trying to see if the figures are correct on an agreement and I dont know how it works.

 

Many thanks

Suzie

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suziedarkness,

I got the following illustration from the FSA website (Money made clear). I hope it helps:

 

 

APR stands for the Annual Percentage Rate of charge. You can use it to compare different credit and loan offers. The APR includes important factors such as:

  • the interest rate you must pay;
  • how you repay the loan; the length of the loan agreement (or term); frequency and timing of instalment payments; and amount of each payment;
  • certain fees associated with the loan; and
  • premiums for payment protection insurance that the lender chooses to make compulsory.

All lenders have to tell you what their APR is before you sign an agreement. It will vary from lender to lender. Generally, the lower the APR the better the deal for you, so if you are thinking about borrowing, shop around.

Example 1:

 

If you borrow £1,000 for one year at 20% interest, and at the end of the year you repay a lump sum of £1,200:

  • you will be paying an interest rate of 20%; and
  • the APR will also be 20%.

Example 2:

 

If you borrow £1,000 for one year at 20% interest, and pay throughout the year in equal monthly instalments (12 x £100 = £1,200),

  • you will still be paying an interest rate of 20%; but
  • the APR, however, will be roughly 40%.

Example 2 is more expensive because you are paying back the £1,000 gradually throughout the year. In Example 1 you have the benefit of being able to access the £1,200 for the whole year, which you could invest and earn interest on. By paying in instalments you're losing out; this increases the cost of the loan - hence the higher APR.

Edited by bennyowen
Change "easy" to "clear"
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for the agreement to be valid it should show how much interest has been charged and how much the payments are and the date due amongst other things. Are these figures shown. It maybe advisable to scan your agreement in taking out all the personal details, ie account number, signature, address, to see exactly what you have.

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Guest suziedarkness

I dont know how to post docs on here.

 

I just wanted someone to give me what they think the correct figures should be as I have tried various loan calculators on the net and they all give me different answers. Im so confused!! lol

 

Suzie

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Guest suziedarkness

Thanks Bennyowen for that, I sort of understand a little. So should the interest rate figure and the APR figure amount to the same charge for interest when worked out on the loan agreement?

 

Suzie

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Guest suziedarkness

Thanks for that Surprise.

 

My repayments are £150.27. What does this mean if they have calculated incorrectly?

 

Suzie

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were there any other fees or ppi included?

 

if not and the agreement pre-dates april 2007, then the prescribed terms were incorrect: the interest rate and/or repayments. In which case it would be unenforceable.

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Guest suziedarkness

Hi MikeK,

 

No, there was no ppi.

Under the key financial information it says:

 

Amount of Credit £6295.00

60 months

Total amount payable £10,291.20

one repayment of £150.27 followed by 58 instalments of £150.27 followed by a final repayment of £225.27 (which includes £75.00 Acceptamce Fee)

APR 16.5%

Other financial information says:

Description of goods

Total cash price £7495.00

Advance payment £1200.00

Hire purchase charges £2576.20

Acceptance fee 145.00

Purchase fee 75.00

Total charge for credit £2796.20

Interest Rate 14.14% per annum.

 

 

What do you reckon MikeK. Unenforceable? if so, what does this mean?

 

Suzie

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You gave me the wrong information to work on initially. You failed to mention the other payments it makes a difference when they include the other fees as you pay interest on this over the 60 payments. The total amount you borrowed was more than the 6295 you originally stated and this was the figure I based my workings on not on 7490.

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Guest suziedarkness

No surprise I dont think that is correct. The 2 fees were payable in 2 instalments the first £145 was an acceptance fee payable with the 1st instalment and the other £75 payable with the last instalment. I am led to believe that these are not part of the finance as such for the vehicle.

 

I apologise if you are right, I really have no clue as to what is correct. I am only going by what I was told by someone else.

 

Does this mean the figures are correct?

 

suzie

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How they have worked it is Amount owing £10291.20 - £1,200 = £9091.20 to pay.

 

Calculations work out

£6295.00 + £145.00 = £6440 x 14.14% interest = £9018.92 + £75.00 = £9093.92

 

your paying 59 payments of £150.27 = £8,865.93 + £225.27 = £9091.20

 

They are out slightly but then they can be upto I think 1% plus its in your favour actually. The payments should work out at £150.32.

 

I presume the agreement is both signed and dated by yourself and Black Horse.

 

The slight difference in the calculations would not make the agreemnt unenforceable, imho, that is.

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I am getting the exact figures that the contract states if the annual rate projected from the APR is 14.13% (14.1264% to be exact) instead of 14.14%. The difference is minor and to your favour i.e. you have not suffered prejudice.

 

But because they can state +1% -0.1% of the APR, when projecting interest from APR the tolerances could be argued.

 

I agree with the previous post.

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Guest suziedarkness

Just one further question Surprise, why has the £145.000 been charged interest in your calculation but not the £75.00?

 

Suzie

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Because the £145 has clearly been rolled into the payments while the £75 is described as being paid seperately in the last month on top of the last payment (£150.27 + £75). If they were to charge interest on the £75 fee, the fee would have to be rolled into the payments somehow.

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You find a lot of loans were there is a payment fee get calculated into the loan figure - they make more money by doing this - I believe they should give you the opportunity of paying this arrangement fee which it is sometimes called.

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Guest suziedarkness

Hi Surprise and MikeK,

 

Thanks for your responses, very much appreciated.

 

what I am really p*****d off about is they have charged interest on the £145.oo but that sum was paid in full with the first instalment, i.e. £295.00 instead of £150.00 just like the £75.00 has to be paid in full with the last instalment. There was no option to spread it, so how can they charge interest on it when it was paid? I just dont understand.

 

Suzie

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This is a difficult one to answer as (a) you paid £145 with the first instalment so therefore it would have been included into the interest (b) did they give you the opportunity to pay £145 prior to the setting up of the agreement? Personally, I would be inclined to write to them and say that you feel you have been misled as you have now discovered the £145.00 has been accruing interest charges over the term of the agreement when in actual fact you paid it along with the first instalment. see what they come back with, they may say no its not accruing interest in which case their figures will be wrong as you would have only been paying around £146.00

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