How is interest on CU loan calculated?

L

lize14

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hi there. of march 2007 i took out a car laon of 20k at my cu in a promotional car loan rate of 7.73%. Monthly payments of 421 euro over 57 months. Cost of credit for this loan is 3795 euro. In the last 12 months i have paid almost 1200 euro in interest which i think seems quiet alot. I also paid 2000 grand off the loan last april bringing down the balance thinking ineterst would drop as well. Interest only seems to come down by 10 cent every week. I have a balance of 14392 left and in last 12 monts ive paid nearly 7 grand... Loan normal or mistake in interest calculations?
i contacted my cu, they said give it a few months and see what happens!
 
Re: CU Ripping me off?

lize14 said:
hi there. of march 2007 i took out a car laon of 20k at my cu in a promotional car loan rate of 7.73%. Monthly payments of 421 euro over 57 months. Cost of credit for this loan is 3795 euro. In the last 12 months i have paid almost 1200 euro in interest which i think seems quiet alot.
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A very rough calculation using Karl Jeacle's mortgage calculator (I know it's not a mortgage but the same general principles apply to any loan) and entering €20K, 5 years (can't enter 57 months) starting in January 2007 and 7.73% gives the following annual table:
Code: 
[B]Year      Interest          Principle         Balance[/B]
2007      €1,426.91         €3,408.49         €16,591.51
2008      €1,153.91         €3,681.49         €12,910.02
2009      €859.02           €3,976.38         €8,933.64
2010      €540.52           €4,294.88         €4,638.76
2011      €196.53           €4,638.76         €0.00
So perhaps the figures you mention are not off?
I also paid 2000 grand off the loan last april bringing down the balance thinking ineterst would drop as well.
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You don't say when the loan started but assuming the details above (in particular starting in January 2007) and making the €2K lump sum capital repayment in April 2007 the following results:
Code: 
[B]Year      Interest          Principle         Balance[/B]
2007      €1,321.51         €5,513.89         €14,486.11
2008      €985.24           €3,850.16         €10,635.95
2009      €676.87           €4,158.53         €6,477.42
2010      €343.81           €4,491.59         €1,985.83
2011      €38.72            €1,985.83         €0.00
i contacted my cu, they said give it a few months and see what happens!
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Eh? Surely they can explain matters to you if you are confused!? :confused:

To be fair to them suggesting that they might be ripping you off when you don't understand the figures seems a bit premature.
 
Re: CU Ripping me off?

I think generally with credit unions you can pay off lump sums or finish loan early, but you are still liable for the full interest on the original loan. Its best to sort out the terms at the start.
 
Re: CU Ripping me off?

When you paid off the 2k did you stress that you wanted the 2k to come off the principle and not lodged as savings?

Most CU will put any lump sum in as savings and not off the loan amount.
 
Re: CU Ripping me off?

MrMan said:
I think generally with credit unions you can pay off lump sums or finish loan early, but you are still liable for the full interest on the original loan.
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What about their oft quoted "interest charged on reducing balance" claim to fame?
 
Re: CU Ripping me off?

Look at the receipts you got from your lodgments and as stated above, they will show you in detail how the cash was applied - interest, shares, etc. IME the CUs are very good at showing where the money goes, once you are clear on where you want the lodgments applied.
 
Re: CU Ripping me off?

lize14 said:
hi there. of march 2007 i took out a car laon of 20k at my cu in a promotional car loan rate of 7.73%. Monthly payments of 421 euro over 57 months. Cost of credit for this loan is 3795 euro. In the last 12 months i have paid almost 1200 euro in interest which i think seems quiet alot. I also paid 2000 grand off the loan last april bringing down the balance thinking ineterst would drop as well. Interest only seems to come down by 10 cent every week. I have a balance of 14392 left and in last 12 monts ive paid nearly 7 grand... Loan normal or mistake in interest calculations?
i contacted my cu, they said give it a few months and see what happens!
Click to expand...
All seems alright but CU should have given you exact details.
You pay 421 euro per month. So persuming you have now made 11 payments that is €4631. Add to that the €2000 you paid off that makes €6631. €20,000 minus €6631 is €13369. so you have paid €1023 in interest which makes sense.
 
Re: CU Ripping me off?

MrMan said:
I think generally with credit unions you can pay off lump sums or finish loan early, but you are still liable for the full interest on the original loan. Its best to sort out the terms at the start.
Click to expand...

No, that's definitely not correct.

I've had a number of CU loans over the years, and have made lump sum payments & repaid in full early without any penalties.
 
Re: CU Ripping me off?

I thought it was the case on their car loans, but I could be wrong.
 
Re: CU Ripping me off?

You are wrong. In credit unions you only pay interest on the declining balance and this applies to all balances. In fact it is one of the advantages of credit unions - if you want to pay off early there are no charges or penalties.
 
Re: CU Ripping me off?

oldtimer said:
You are wrong. In credit unions you only pay interest on the declining balance and this applies to all balances. In fact it is one of the advantages of credit unions - if you want to pay off early there are no charges or penalties.
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Isn't that the case with most or all non fixed rate loans from other (e.g. non CU) sources?
 
Re: CU Ripping me off?

Credit Unions calculate their interest on the basis of the principal outstanding.

Ask to see the Manager. Ask the Manager for a full explanation. Give him or her an appropriate time to look into the complaint. If you are unsatisfied, or are unconvinced, put the basis of your complaint in writing, and address it to the Complaints Committee of the Credit Union. If you are not satisfied with the written response you receive, contact the Financial Services Ombudsman's Office, and they will assist you in coming to a conclusion.
 
Re: CU Ripping me off?

Lize

It is totally inappropriate and grossly unfair to your credit union to imply that someone is ripping you, just because you don't understand how interest is calculated.

I have edited the title of your post, but in future please moderate your language on Askaboutmoney.

Brendan
 
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