1st CU Loan, €650 in shares, looking for €1.3k, repayments €100/m 18mo = 9.95%.

L

Lauralashes

Registered User
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Hi there,

Just wondering if someone could help me with this - Im applying for my first CU Loan, I have 650 euro shares so was looking for 1300 euro as a loan. The representative advised that the repayments would be 100 euro per month for 18 mths. The Loan rate is 9.95 %.

Does €500 interest over the 18 mths on €1300 seem quite high?

Thanks,
Laura
 
Lauralashes said:
Hi there,

Just wondering if someone could help me with this - Im applying for my first CU Loan, I have 650 euro shares so was looking for 1300 euro as a loan. The representative advised that the repayments would be 100 euro per month for 18 mths. The Loan rate is 9.95 %.

Does €500 interest over the 18 mths on €1300 seem quite high?

Thanks,
Laura
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Yes, that sounds ridiculous. I would estimate that loan would be cleared in 14-16 months based on crude calculations. Total interest 80-100 euro. Are you sure they weren't also adding on Payment Protection Insurance?
 
All CU's have different rates most typically @ 12%. as slim says there could be payment protection insurance inc but unlikely unless they told you it was
 
Hi Laura

Why are you borrowing €1300 if you have €650?

What is the price of the thing you are buying? If it's €1300, ask the CU for €700 and withdraw €600 in shares.
 
Shares are used by CU's as collateral for loans . Even in good times there would've been very few CU's that would give someone a first loan of €700 with only €50 left in shares after withdrawing €600, a ratio of 14:1. CU's unlike a bank want to see a repayment history before they give you a bigger loan, also Lauralashes doesent say how she put her €650 in, was it weekly amounts or one lump sum, these factors are also taken into consideration when giving someone a loan. And dont forget the regulator is looking over the shoulder of your local CU now more than ever
 
Another likely scenario is that they are suggesting equal monthly repayments with the remaining amount going in to your share. In month 1 you may pay €75 off the principal, €15 in interest and €10 in to shares. By the last payment the interest would be nominal so probably €23/24 euro going in to shares.

Although all credit unions are different, it is very unlikely that your credit union will give you the best return on savings (shares).
 
As other posters have mentioned, the €500 over the €1,300 is not interest. Most CU's have a loan calculator on their website. My CU will require payback of €1,363 for a €1,300 loan over 52 weeks. Interestingly they also offer loans at 5% interest fully secured on my shares, so if I needed say €1,000, I'd only have to repay €1,026, cheap enough.
 
STEINER said:
As other posters have mentioned, the €500 over the €1,300 is not interest.
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What is it then?
My CU will require payback of €1,363 for a €1,300 loan over 52 weeks.
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c. 5% interest is not bad. I haven't seen a CU offering that sort of rate on general loans in a while.
Interestingly they also offer loans at 5% interest fully secured on my shares, so if I needed say €1,000, I'd only have to repay €1,026, cheap enough.
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2.6% is not equal to 5% so how do you work that out? Normally if the cost is 5% and you also have to keep shares lodged at a dividend of probably 1% or thereabouts then the effective cost of borrowing is going to be (sometimes significantly) higher than 5%.

With regard to the original query ... if the CU is the only option here then how about (what Brendan may have meant?) borrow €1.3K on the back of €650 shares then once the loan has been granted ask them (insist if necessary) to offset c. €600 off the loan and readjust the repayment amount or term.

Either way crunch the numbers before doing anything.
 
Hi,

Thanks for the replies -I'll have to go through the figures again with them if its approved. I won't be taking the loan if the interest is €500 thats for sure. I'll try some other places.
 
If you pay €500 interest on a loan of €1.3K over 18 months then that's about 25% and not 9.95% APR by my very rough reckoning so something is wrong with the figures/info here.
 
Hi Laura,

Ive expanded your title somewhat to reflect your question more fully.

How did you get on with other loan providers?

aj
mod
 
There has been some good and some shockingly bad advice posted on this thread.

First of all, no member has the right to dictate terms to the credit union. Members who sign a loan agreement/contract and then immediately insist on changing the terms as Clubman suggests will destroy their credit line in the credit union.

One of the fundamental differences in CU's v banks is that a CU will often engage in "character" lending - taking a member at his/her word when they sign the agreement. Once you get a reputation for not keeping your word, your chances of getting future credit is severely damaged.

@ Clubman - your crude calculations of interest rates (in post #8) are way off and should, ideally be removed from the thread as they will only serve to confuse those seeking advice. You seem to be unaware as to how interest is calculated on reducing balances and the effect this has on the overall cost of credit.

OP - get a copy of the "pre-contractual information sheet" from the CU - it will detail the interest rate and the overall cost of credit.
 
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CU Manager said:
@ Clubman - your crude calculations of interest rates are way off and should, ideally be removed from the thread as they will only serve to confuse those seeking advice. You seem to be unaware as to how interest is calculated on reducing balances and the effect this has on the overall costrat credit
.
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Curious post, I would have done the same calc as clubman, I just reworked the numbers and calculated a flat rate of 46% would repay the loan in 17 months at 100 per month.

Maybe you could clarify if it is likely that the shares / loan split mentioned by an earlier poster is coming in to play here?
 
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My comment on Clubmans calc's is in relation to Post#8 on this thread i.e. his reply to Steiner
@ Milleforbes I'm not sure what you are referring to I'm afraid. There is no doubt in my mind that the OP's figures are incorrect, hence my suggestion for the OP to get the pre contractual information sheet.
 
CU Manager said:
@ Milleforbes I'm not sure what you are referring to I'm afraid. There is no doubt in my mind that the OP's figures are incorrect, hence my suggestion for the OP to get the pre contractual information sheet.
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Fair enough, I didn't get that from your post
 
CU Manager said:
@ Clubman - your crude calculations of interest rates (in post #8) are way off and should, ideally be removed from the thread as they will only serve to confuse those seeking advice. You seem to be unaware as to how interest is calculated on reducing balances and the effect this has on the overall cost of credit.
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Why not point out where I went wrong so that we can all learn something? If I borrow €1300 and pay back €1363 over a year then the effective rate is surely c. 4.8%? Do you get a different result?
CU Manager said:
There has been some good and some shockingly bad advice posted on this thread.
First of all, no member has the right to dictate terms to the credit union. Members who sign a loan agreement/contract and then immediately insist on changing the terms as Clubman suggests will destroy their credit line in the credit union.
On of the fundamental differences in CU's v banks is that a CU will often engage in "character" lending - taking a member at his/her word when they sign the agreement. Once you get a reputation for not keeping your word, your chances of getting future credit is severely damaged.
Click to expand...
CU customers also have certain rights under prevailing CU legislation. It's not always clear which takes precedence - the law or the loan agreement/contract. Individuals need to make up their own mind what is best for their situation. What the CU may recommend may not always be in the customer's best interest. I was making some suggestions that might help the original poster and others. It's up to them to weigh this up along with other options. I don't have any vested interest in this context.
 
@Clubman - you can't use simple math to work out the rate. You dont borrow the €1300 for a full year. You only borrow the €1300 for a week until you make your first payment, then the principal borrowed (and the interest charged) reduces and so on for all 52 weeks.
To keep even payments through the term, the lender uses an amortisation table to work out the payments.
When you amortise €1300 over 52 weeks @9.5% interest, the payments are €26.23 per week i.e. €1,363.96. Total cost of credit is €63.96.
Thats a long way off 4.8% and I think that post 8 needs to be removed/amended as its very misleading!
 
CU Manager said:
When you amortise €1300 over 52 weeks @9.5% interest, the payments are €26.23 per week i.e. €1,363.96. Total cost of credit is €63.96.
Thats a long way off 4.8% and I think that post 8 needs to be removed/amended as its very misleading!
Click to expand...
I borrow €1300 and pay back €1363.96.

(€63.96 / €1300) x 100 = 4.9%

But you want to call it 9.5% instead? And at the same time - I think - imply that my figures overstate the cost of borrowing?

Sorry - I'm confused. As I normally am when the CU tries to explain what a great deal they give people due to only charging interest on the reducing balance of the loan (which most or all lenders do anyway without making a song and dance about it), quoting rates that do not reflect the effective total cost of borrowing when stuff like having to keep 25%+ of the loan balance on deposit/in shares at marginal returns is factored in and telling them about this marvellous free insurance that they offer that comes at no cost to anybody at all at all...
 
@Clubman - you dont seem to grasp the fundamentals of how loan interest is calculated. This isn't a problem per se, except that you reply to other posters here with an air of authority and people would be lead to believe that you are giving them correct information.
If you believe that you are borrowing the €1,300 for a full 52 weeks then fine but, in reality you are not. Your principal outstanding is dropping every week. Look at the table below which shows you teh amortised cashflow of payments split between capital and interest over the 52 weeks (can you work out the interest charged in the 1st week? then do the same for each week by reference to the principal remaining at the start of that week! ):
Principal Pay Int Principal
1,300.00 (26.23) (2.38) (23.86)
1,276.15 (26.23) (2.33) (23.90)
1,252.25 (26.23) (2.29) (23.94)
1,228.30 (26.23) (2.24) (23.99)
1,204.32 (26.23) (2.20) (24.03)
1,180.29 (26.23) (2.16) (24.07)
1,156.21 (26.23) (2.11) (24.12)
1,132.10 (26.23) (2.07) (24.16)
1,107.94 (26.23) (2.02) (24.21)
1,083.73 (26.23) (1.98) (24.25)
1,059.48 (26.23) (1.94) (24.29)
1,035.18 (26.23) (1.89) (24.34)
1,010.85 (26.23) (1.85) (24.38)
986.46 (26.23) (1.80) (24.43)
962.04 (26.23) (1.76) (24.47)
937.56 (26.23) (1.71) (24.52)
913.05 (26.23) (1.67) (24.56)
888.48 (26.23) (1.62) (24.61)
863.88 (26.23) (1.58) (24.65)
839.23 (26.23) (1.53) (24.70)
814.53 (26.23) (1.49) (24.74)
789.79 (26.23) (1.44) (24.79)
765.00 (26.23) (1.40) (24.83)
740.17 (26.23) (1.35) (24.88)
715.29 (26.23) (1.31) (24.92)
690.37 (26.23) (1.26) (24.97)
665.40 (26.23) (1.22) (25.01)
640.38 (26.23) (1.17) (25.06)
615.32 (26.23) (1.12) (25.11)
590.22 (26.23) (1.08) (25.15)
565.06 (26.23) (1.03) (25.20)
539.87 (26.23) (0.99) (25.24)
514.62 (26.23) (0.94) (25.29)
489.33 (26.23) (0.89) (25.34)
464.00 (26.23) (0.85) (25.38)
438.62 (26.23) (0.80) (25.43)
413.19 (26.23) (0.75) (25.48)
387.71 (26.23) (0.71) (25.52)
362.19 (26.23) (0.66) (25.57)
336.62 (26.23) (0.62) (25.62)
311.01 (26.23) (0.57) (25.66)
285.34 (26.23) (0.52) (25.71)
259.64 (26.23) (0.47) (25.76)
233.88 (26.23) (0.43) (25.80)
208.08 (26.23) (0.38) (25.85)
182.23 (26.23) (0.33) (25.90)
156.33 (26.23) (0.29) (25.94)
130.39 (26.23) (0.24) (25.99)
104.39 (26.23) (0.19) (26.04)
78.36 (26.23) (0.14) (26.09)
52.27 (26.23) (0.10) (26.13)
26.13 (26.18) (0.05) (26.13)
 
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