Help understanding interest please :(

[redmanmark86]

thanks again for your help pulu,

 

do you know where i stand with them not applying the 150 pound payments to my account straight away but instead putting them towards making 53.72 payments?

 

obviously if i pay 150 then it should be taken of the account straight away right, which would affect the year rate of interest and bring the interest down as im making larger payments than the set 53.72?

 

or is that totally wrong and they are in the right using the 1247 i paid to make payments of 53.72?

 

please any advice really would be appreciated because im going to call them shortly and it would be nice to know if im in the right or wrong?

 

thanks so much

 

Mark

[pulu31]

There may be a clause in your contract (as with some mortgages) that forbids deposits greater than the monthly amount payable shown on the contract.

[redmanmark86]

i have attached my agreement earlier, can you see anything in the agreement?

 

they do no have the original terms and conditions that go with the agreement so are not able to provide them?

 

all they have is the credit agreement itself and a list of all the payments i had made, they have also said previously when i was kicking up a fuss that im allowed to make larger payments to pay it off faster...

 

so where do i stand in that situation?

 

Thanks again.

[pulu31]

Well if that's the case (allowing larger payments) then I think that the £150 payment should have appeared as such on your statement.

[redmanmark86]

i dnt suppose you can work out what the interest should of been if i had paid 1247 up to the peroid of july 2008, a rough bull park figure so i got some figures to throw at them.

[pulu31]

I would have assumed that it would have been the Nominal Rate.

[redmanmark86]

did you know how much the total interest would of gone down by i mean?

 

if im understanding your maths right then i need to take the deferred sum of 1583.69, and for each month i made a payment of 150, take it from that sum then apply the nominal interest rate you calculated for the left over balance of that month, and keep doing that up to my last payment i made in july?

 

and that will give me how really was left to pay by the end of july 2008?

 

have i worked that out right?

[pulu31]

Making a larger payment does not alter the interest rate.

[redmanmark86]

so what does making a larger payment do?

 

i didnt mean alter the interest, i meant it would alter the total amount of interest payble in the long because they calculate the interest on assumptions ill owe certian amounts through out right?

 

so if after i owed 1583.69 at the end of the deferred peroid which they apply a nominal rate to each month minus 53.72 then if i paid 150 instead, it would be nominal rate minus 150... which in turns affects the total amount of interest i'd pay in the long run?

 

does that make any more sense pulu31?

 

i guess im basically asking, if i made larger payments each month should the total interest payable be less then the qouted 1331.56?

[pulu31]

Please, please, when I was a lecturer of Mathematics I always told my students that "Half the solution to a problem is to state it correctly".

 

Now can I ask you to, instead of typing your question into the 'Post Reply' box, take pen to paper and formulate your question. Then pass it to your wife, partner, friend etc., and ask them to read it. If they start to ask questions then, it is not stated correctly.

Once your question is formulated and precise then that is the time to post it.

 

Paying a larger sum reduces the current principal. Because the principal has been reduced, the total interest payable will/should also be reduced (but not the rate).

 

However, are repayments and interest calculated on a monthly basis, or an annual basis? Because there will be a difference in the overall interest paid between the two structures.

[redmanmark86]

sorry if i havent been clear enough with you, i am at work so get very limited time to post on here, but tomorrow i will go the figures as best i can using your formulate (please remember maths isnt my strong subject)...

 

The person on the phone yesterday told me it is worked out on a monthly basis, but i will call them again after work and confirm.

 

thanks,

 

mark

[pulu31]

This is my last post regarding this matter.

I cannot answer questions that only the lender can.

 

The following illustrates the difference between two accounts. One with interest added annually and the other monthly. I have only used the example as an investment (savings) account. To include repayments, such as a loan account, would be too difficult for you to understand.

 

Fact:

Interest calculated annually:

 

i) P(1 + r)^n

 

Where:

P is the principal

r the Nominal Rate of Interest

n the term (years)

q the time interval of payment of interest

 

Interest calculated monthly:

 

ii) P(1 +r/q)^nq

 

So that an investment of say 1247 over 4 years with a NIR of 26.36% pa would result in:

i) interest paid annually

 

1247(1 + 0.2636)^4 = 3179.10

 

ii) interest paid monthly

 

1247(1 + 0.2636/12)^48 = 3538.58

 

Can you now see why it is important to know whether the interest is paid/charged annually or monthly?

Edited July 18, 2009 by pulu31

[redmanmark86]

This is my last post regarding this matter.

I cannot answer questions that only the lender can.

 

The following illustrates the difference between two accounts. One with interest added annually and the other monthly. I have only used the example as an investment (savings) account. To include repayments, such as a loan account, would be too difficult for you to understand.

 

Fact:

Interest calculated annually:

 

i) P(1 + r)^n

 

Where:

P is the principal

r the Nominal Rate of Interest

n the term (years)

q the time interval of payment of interest

 

Interest calculated monthly:

 

ii) P(1 +r/q)^nq

 

So that an investment of say 1247 over 4 years with a NIR of 26.36% pa would result in:

i) interest paid annually

 

1247(1 + 0.2636)^4 = 3179.10

 

ii) interest paid monthly

 

1247(1 + 0.2636/12)^48 = 3538.58

 

Can you now see why it is important to know whether the interest is paid/charged annually or monthly?

 

Hi Pulu,

 

i know you said that was your last post but im hoping you can enlightening me a bit more just one more time, or someone else hopefully.

 

i just had a long chat with them on the phone. They said the interest is calculated from the beginning and they only way to pay a reduced rate of interest is to request a settlement figure.

 

They said even if at the end of the advance date i only had 100 left to pay on the price of the goods they would still add 1331.56 interest as the interest is calculated out right and never goes downs even if you make larger payments.

 

I have requested a break down of the interest on a month by month basis and my original terms again, and not my agreement which sould shed some light on if i can or cant make larger payments.

 

My question itself isnt maths related.

 

Basically they said i can make larger payments to pay it of earlier but it wouldnt bring the interest down even if i paid it a two years early unless i requested the settlement figure and paid in one go.

 

But to me that just doesn't sound right as the interest is calculated on the price on the goods and the idea i'd be paying it of over 48 months (plus 12 months advance). So if i paid it of two years early i should surely have to only pay 2 years worth of interest plus the advance?

[enamae]

Hi Pulu,

 

i know you said that was your last post but im hoping you can enlightening me a bit more just one more time, or someone else hopefully.

 

i just had a long chat with them on the phone. They said the interest is calculated from the beginning and they only way to pay a reduced rate (amount not rate)of interest is to request a settlement figure.This is correct.

 

They said even if at the end of the advance date i only had 100 left to pay on the price of the goods they would still add 1331.56 interest as the interest is calculated out right and never goes downs even if you make larger payments.Not necessarily correct depends how they apply the payments.

 

I have requested a break down of the interest on a month by month basis and my original terms again, and not my agreement which sould shed some light on if i can or cant make larger payments.This would have been included in the Subject Access Request that I advised you to send off for in post 18. You also need to request transcripts/recordings of any telephone conversations as well as account details.With a SAR they have to supply everything they have on you.

My question itself isnt maths related.

 

Basically they said i can make larger payments to pay it of earlier but it wouldnt bring the interest down even if i paid it a two years early unless i requested the settlement figure and paid in one go.True

 

But to me that just doesn't sound right as the interest is calculated on the price on the goods and the idea i'd be paying it of over 48 months (plus 12 months advance). So if i paid it of two years early i should surely have to only pay 2 years worth of interest plus the advance?

 

I've had another look at this and think you still owe part of the original advance as interest would and should have been deducted from the payments you made.

 

I don't have time at the minute but I will have a go at working out some figures for you later.

 

 

enamae

[steven4064]

I ran the loan through the OFT's program Dualcalc:

DualCalc - Dual APR and Rebate Calculator

 

Version 1.02a © Crown Copyright 2005-06

Office of Fair Trading

by Brian Stewart

 

Calculation Log File

 

Complex APR Calculation

 

Logged: Tue.21 Jul 2009,21:06:30

 

Loan Details:

Loan Amount = £1647.00(time = Zero)

Initial Sum = £400.00

 

(time = Zero) Days in a Year = 365.25

Periods in a Year = Months

Relevant Date = Zero

 

Advance/Repayment Details:

 

Levels = 2

Level 1 = £Zero Length = 12 (times 1 to 12)

Level 2 = £53.72 Length = 48 (times 13 to 60)

 

APR Results:

 

Loan Totals ...

Total Amount Advanced = £1647.00

Total Amount Payable = £2978.56 (TAP)

Total Charge for Credit = £1331.56 (TCC)

 

Rate Results ...

Period Rate = 2.12834339162%

Nominal Annual Rate = 25.5401206995%

Effective Annual Rate = 28.7524340501%

Annual Percentage Rate = 28.8 (APR)

 

The loan document says 29.8% which is incorrect but within the tolerance allowed by schedule 7 of the Consumer Contracts (Agreements) Regulations 1983.

 

You cannot calculate APR using a simple formula as the equation for it is very complicated. It has to be calculated using a computer program like Dualcalc. The APR is like an average rate over the whole loan. THe calculation I did was for an initial payment (deposit) of £400 followed by 12 payments of £0 and then 48 payments of £53.72

Edited July 21, 2009 by steven4064

[pulu31]

Thank you for your post.

Substituting your given figure in the formula I gave in post #23, we have:

 

r = (1 + R)^1/12 - 1

 

= ( 1.28754340501) ^0.08333333333 - 1

= 0.021283434

That's the monthy Nominal Rate.

 

Annual NIR = 0.021283434 x 12 = 0.255401208..........

 

i.e. 25.54%

Confirming your computer calculation.

 

The APR provided in the early posts of this thread were possibly incorrectly illustrated.

 

Regards,

Dr. B

Edited July 22, 2009 by pulu31

[steven4064]

Yes. Period rate * 12 gives nominal rate

 

APR is given by (1 + period rate)^12 - 1

[pulu31]

Yes Stephen I know that. I have already shown in post #23

Dr. B

[steven4064]

Sorry, didn't read back that far

[redmanmark86]

thanks for replying steven and pulu31, its good to know the interest is correct and im not being taken advantage of, your help is very much appreciated.

 

Does anyone know if the interest should have changed by me making larger payments for the first 6 months?

 

Does anyone know what i do if they cant ever provide me with my matching terms and conditions that go with that agreemnt?