How to calculate interest??

[trueknight]

Quick question - I stink at math in general so maybe someone here can help me out.

I have a loan that I've been paying on (car title loan - don't EVER get one!!), and in a nutshell I pay $200 per month with $50 of it going to the principle. I'm wasting 150 a month on interest with no end in sight unless I buckle down and add to the principle. There is no fixed pay-off date because they allow you to pay a little less sometimes if you are in a bind. The downside to that scenario is they add what you didn't pay on to your loan.

Sooooo..............how do I figure out what the interest is on this loan??
thx!!

[noppenbd]

Generally, take the interest rate times the remaining balance, and divide by 12. That should be the amount you pay in interest each month. For example, if you owed $20000 at 9% interest, you would pay about $150 in interest each month. Of course, as you pay down the loan more and more will go to interest, so this is only a "snapshot" of the current month.

If you need to go the other way, take the interest you pay each month, multiply by 12, and divide by the remaining balance on the loan. If you pay $150 in interest each month, and you owe $18000, your interest rate would be 10%.

[trueknight]

Thanks, I did the latter part. I multiplied 150 by 12, then divided it by what I owe.

Yikes - 150% interest!!!! I guess these folks are in the same category as payday loans. To be truthful I owe just under $1100 on my vehicle. It was already paid for and they hold my title until it's paid off.

So was my math correct on the interest then??

[noppenbd]

If this is a car title loan, yes, these people are sharks. You should do anything possible to pay it off. I would even borrow from a 401k before I would do a loan like this. Your interest rate calculation sounds (frighteningly) correct. No wonder they let you pay "a little less" than the full payment. They have no interest in losing this cash cow!

[swaymonae]

Holy crap.. transfer a balance quick.

[trueknight]

That's the truth - but no balances to transfer. I'm planning/scheming to get out of this mess. I didn't realize what a sickening thought it would be to find out the true interest i'm paying on this thing!!! Yuck.

I'm sure I can get the funds out there for much more respectable interest rate.

[Stuartthomas]

I’m not disputing that people should complain about them for their high interests....they are their to help poor..

[Stuartthomas]

or if you think they are trying to rip off poor and vulnerable people or if it is a genuine attempt to provide short-term loans to people who wouldn’t otherwise get one.

[jpg7n16]

Well the interest rate is not the same thing as the percent of your payment going to interest.

Take the total amount you'll pay ($200 * however many payments you have) and subtract out the balance you are trying to pay off. Whatever extra you pay is the interest charged over the life of the loan.

So if it costs you 12 payments of $200 (12 * $200 = $2400) to remove a debt of $1800, that extra $600 would be interest.


To find an interest rate, we'd need a Beginning Value, payment amount, and timeframe when it will be paid off (# of payments).



Using the percentage of payment is misleading. Cause think about a mortgage. In the early stages the largest percent of the payment is going to interest, even though the rate may only be 5% on the loan.

example - a $100k mortgage 30 year @ 5% has a payment of $536.82/month. Of that 1st payment, $416.67 goes to interest and $120.15 goes to principal. Does that mean the interest rate is 347%? No, it's only 5%.




So how much was your loan for? If you keep paying $200/month, how long until it's gone? Answer those, and I'll calculate your rate.

[jpg7n16]

Or if you've got excel and would like to calculate it yourself, then type it in as so:

_____A______________________B____________
1)Number of Payments________# of monthly payments you started with (a 5yr loan would be 60 payments)
2)Payment_________________($200.00)
3)Beginning Loan___________Amount you borrowed
4)Ending___________________$0
5)Interest rate_______________=12*rate(B1,B2,B3,B4)

[cicy33]

Originally Posted by trueknight

Quick question - I stink at math in general so maybe someone here can help me out.

I have a loan that I've been paying on (car title loan - don't EVER get one!!), and in a nutshell I pay $200 per month with $50 of it going to the principle. I'm wasting 150 a month on interest with no end in sight unless I buckle down and add to the principle. There is no fixed pay-off date because they allow you to pay a little less sometimes if you are in a bind. The downside to that scenario is they add what you didn't pay on to your loan.

Sooooo..............how do I figure out what the interest is on this loan??
thx!!

This is actually an area that bothers me with people. I was having a discussion regarding mortgages with my daughter the other day and she wanted to know about the snowball calculators. So I was explaining and asked what her interest rate was. She didn't know. That is sad. I think that if anyone is buying anything you should be aware of what your interest rate is at any given moment. if nothing else, pull out the loan agreement paper that you should be keeping and look at it. it will tell you. She was just making payments with no idea what her balance is or anything. She didn't even know how many years. I am sure she did the day she bought it but now can't recall. Until people become aware and responsible for their part of the loan and I am not just talking about paying it off, these problems will not go away.

[disneysteve]

Originally Posted by cicy33

asked what her interest rate was. She didn't know.

I am sure she did the day she bought it but now can't recall.

I think that's quite common. Even folks who do their homework before taking out a loan often don't commit the terms to memory because once the loan is set, it doesn't matter to them. Remember, we are all personal finance junkies. I know my mortgage rate is 5.875% on a 25-year fixed term and I have 17 years, 9 months left with a balance of just over $87,000 but most normal people couldn't rattle off data like that.

For the record, I don't really have that long left because I've been making extra payments for the past couple of years, but that's what my statement says.

[LttlDriver]

thanks for the tips