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Old 02-21-2007, 03:44 PM   #1
GooseMan
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Question Anyone here good with calculating loan payments?

I have a $25,000 business loan from the bank to pay for my car. I bought my car in the US, so the only way to pay for it was a loan from the bank.

The term is 60 months, at a rate of 8.00%

I was told my payments are to be $416/month. But after a quick calculation, thats what it would be at 0% interest ($25K / 60 = $416.67)

For some reason, the bank is taking $416.67 and on top of that, another $170 each month from my account

According to the loan calculator on THEIR SITE, it clearly states I should be paying a total of $507.00 / mo

Is there something I'm not calculating correctly? I dont get it!
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Old 02-21-2007, 03:46 PM   #2
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uh, yep. 8% for 60 months for 25K is 506.91

and 0% is 416.67
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Old 02-21-2007, 03:47 PM   #3
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Yeah I would call them immediately and demand an explanation.
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Old 02-21-2007, 03:47 PM   #4
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You got hosed, eh?
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Old 02-21-2007, 03:50 PM   #5
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Check the paperwork.
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Old 02-21-2007, 03:51 PM   #6
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Quote:
Originally Posted by cwb124 View Post
Yeah I would call them immediately and demand an explanation.

left em a message a few hours ago...I'm just wondering if it the interest is calculated annualy...or what!
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Old 02-21-2007, 03:51 PM   #7
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is this cannadian dollars?
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Old 02-21-2007, 03:52 PM   #8
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Yes...but it doesnt matter..the math is still the same
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Old 02-21-2007, 03:54 PM   #9
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Quote:
Originally Posted by GooseMan View Post
Yes...but it doesnt matter..the math is still the same
I thought the bank loaned you $25,000 US dollars and you are paying back cannadian dollars. I thought maybe they are doing the conversion which will make your payment in cannadian dollars about 416+170 = 586. Not too sure if that's what they are doing.
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Old 02-21-2007, 03:57 PM   #10
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nono...

well, my friend just figured it out. It's because I'm paying 8.00% interest PER ANNUM...so its $2000/year x 5 years = $10,000

So it comes out to $35,000 / 60 = $583.....now it makes sense...

Now I'm pissed
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Old 02-21-2007, 03:59 PM   #11
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^^^WOW, talk about a RIP OFF!
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Old 02-21-2007, 03:59 PM   #12
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So wait, they loaned you $25,000 and you're paying back $35,000? I'd be pissed too.
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Old 02-21-2007, 04:00 PM   #13
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Calculation:
Define:

i = periodic interest rate (for monthly, just take the APR divided by 12; may not be EXACT if some funky compounding but should be very close

v = 1 / (1 + i )

n = number of periods (payments)

Define a = [ 1 - v^n ] / i

PMT = LOAN AMT / a

For you:

i = .08/12
v = 1 / (1+.08/12)
n = 60
a = about 49.3

25,000 / 49.3 = ~$507

CN: what they said, but just to prove it and/or let you adapt to a change in terms down the road

EDIT: sounds like you're paying "simple" vs. compound interest
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Old 02-21-2007, 04:01 PM   #14
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Seems that the loan period is 50 versus 60 months.
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Old 02-21-2007, 04:02 PM   #15
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I have a sample "offer" spreadsheet for an STi.

It goes through all the costs, including taxes, etc. You can input the loan amount, interest rate, etc. It will tell you the monthly payment.

It's pretty self explanatory.

LINK

EDIT: Which is why you should be armed with aforementioned spreadsheet so you know *exactly* how much your payment should be before you sign anything. That way, if the dealer's numbers don't match yours within a dollar or so, you immediately know something is wrong.

I've used this thing to buy three vehicles now....once the dealer sees you got your stuff together, they generally don't screw with you.

The only time I didn't use it was for my first car. Luckily, my dad used a cruder method but didn't tell me to teach me a lesson. Just before I finished signing everything, he piped up and said something was wrong. Turned out the dealer had tried to screw me out of a $1000 rebate hoping I was too young and stupid (I was) to notice. The dealer pretended it was an "honest oversight" and got it corrected.

Last edited by f4phantomii; 02-21-2007 at 04:09 PM.
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Old 02-21-2007, 04:08 PM   #16
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Yeah, all the loan calculators say $507....but thats if the 8% is caclulated over the entire 60 month period.

What I'm seeing is 8% per YEAR (so $25K x 0.08 = $2000... x 5 years = $10K!!)

Who the hell calculates a loan like this?
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Old 02-21-2007, 04:14 PM   #17
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Quote:
Originally Posted by GooseMan View Post
Yeah, all the loan calculators say $507....but thats if the 8% is caclulated over the entire 60 month period.

What I'm seeing is 8% per YEAR (so $25K x 0.08 = $2000... x 5 years = $10K!!)

Who the hell calculates a loan like this?
Like I said, I believe it's just matter of using "simple" interest, so named because the monthly interest you pay each month is "simply" determined by your monthly periodic rate (.08/12) against your borrowed balance ($25K). =.08/12*25000 = $167. I agree it's rare, but it's an old - not new - way of doing it, I think.
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Old 02-21-2007, 04:21 PM   #18
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(reading comprehension > me)

You took a $25,000 loan for 5 years at an APR (Annual Percentage Rate) of 8%.
Excel's PMT() function says the payments should be $506.92. (P&I)

Your bank is doing something weird.

From the help file:
PMT

Calculates the payment for a loan based on constant payments and a constant interest rate.

Syntax

PMT(rate,nper,pv,fv,type)

For a more complete description of the arguments in PMT, see the PV function.

Rate is the interest rate for the loan.

Nper is the total number of payments for the loan.

Pv is the present value, or the total amount that a series of future payments is worth now; also known as the principal.

Fv is the future value, or a cash balance you want to attain after the last payment is made. If fv is omitted, it is assumed to be 0 (zero), that is, the future value of a loan is 0.

Type is the number 0 (zero) or 1 and indicates when payments are due.

Set type equal to If payments are due
0 or omitted At the end of the period
1 At the beginning of the period
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Old 02-21-2007, 04:27 PM   #19
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sounds like your bank is making you pay interest on the PV for the life of the loan like you said. thats the most usuristic thing evAr. muslims do not approve. they declare jihad on your bank.
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Old 02-21-2007, 04:51 PM   #20
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Quote:
Originally Posted by sonicblue View Post
Like I said, I believe it's just matter of using "simple" interest, so named because the monthly interest you pay each month is "simply" determined by your monthly periodic rate (.08/12) against your borrowed balance ($25K). =.08/12*25000 = $167. I agree it's rare, but it's an old - not new - way of doing it, I think.
i don't think that's the right answer.... are you sure?

I think this:

simple interest would not result in paying $80/month more... the interest still needs to be applied only on the outstanding balance... which is amortized over 60 months. So when that balance is going down, the interest should go down as well. Simple interest doesn't mean you get ripped off to the tune of $80*60 $4800... that doesn't make sense to me.
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Old 02-21-2007, 05:00 PM   #21
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Soooo, you went through the hassle of grey-marketing a car, which may or may not have warranty coverage, and now the financing deal has evaporated any money that you saved by doing so.

Am I missing something ?
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Old 02-21-2007, 05:04 PM   #22
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How about you just call them up and find out. Maybe they made a mistake.
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Old 02-21-2007, 05:06 PM   #23
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Quote:
Originally Posted by WRXVT View Post
i don't think that's the right answer.... are you sure?

I think this:

simple interest would not result in paying $80/month more... the interest still needs to be applied only on the outstanding balance... which is amortized over 60 months. So when that balance is going down, the interest should go down as well. Simple interest doesn't mean you get ripped off to the tune of $80*60 $4800... that doesn't make sense to me.
When a loan with compound interest is calculated, the amount you pay in interest each month changes but the payments are calculated to be level each period. So, you pay a lot of interest in the first payment and very little in the last payment. It's difficult to calculate because you need a single number that, over the whole period, will work out to pay the principal to $0 as interest is compounded monthly or whatever. Whether you pay less interest overall is completely dependent on knowing ALL the terms of the simple vs. compound.

For a simple interest loan, it's much "simpler." For each payment, the interest amount is constant. It could be anything; in this case, it appears to have been defined as 8% of the starting balance, so $167 each month. The principal part of the payment is simply the loan amount / 60 = $417. Total payment = 167 + 417 = 583. Simple to calculate, hence the name.

Compound interest: constant interest rate (relative to your outstanding balance at each period)
Simple interest: constant interest amount

/class

Last edited by sonicblue; 02-21-2007 at 05:16 PM.
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Old 02-21-2007, 05:12 PM   #24
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sonic--that sounds EXACLTY how it is...thats why theyre taking two payments from my account...one for $416.67, and another for $167 (which says "INT D/L")

Wagon_From_Hell--well....that was not the plan!
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Old 02-21-2007, 05:14 PM   #25
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Glad I could help out, Goose, but sorry they pulled some wool on ya'. Refi?
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