How to calculate outstanding balance on a personal loan ...

Hi,

I have a Northern Rock personal loan which I took out in September 2003 and was wondering how I would go about calculating the amount outstanding as of today as I am considering paying it off.

Can I calculate this myself easily or do I need to contact Northern Rock directly for a balance?

TIA

Ronnie.

Reply to
Ronnie Davis
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Its best to contact them, just incase you make a error in the amount

Reply to
Lo salt

Yes OK. I just wondered whether there was a method of calculating just to get and idea.

Many thanks.

Reply to
Ronnie Davis

Just times the monthly payment by the number of payments left - if Northern Rock are like any of the other banks, they give you diddly squat back in interest rebate, so there is no point in thinking you're going to save money by paying it off early.

Reply to
Neaco

In message , Neaco writes

This is completely wrong.

Reply to
john boyle

In message , Ronnie Davis writes

Its better to contact NR, be sure to ask for a 'settlement figure', not 'how much do I owe'.

It is possible to calculate the amount but it depends on the method NR use for their interest calculation and 'early repayment' criteria and there are different ways of doing it.

Reply to
john boyle

The mathematics may be but the reality isn't - I once asked a loan company a settlement figure for a loan that still had 18 months to go until final repayment and the saving on interest was about 20. I asked why it was such a small amount and was told it was because they front ended all the interest to the start of the loan and by the end of it you were paying more capital than interest. End result is that if you pay off a loan early you save a pathetic amount on interest. It was hardly worth paying the loan off early so I didn't bother - and I later learned that this system was common across a lot of banks because a lot of people pay loans off early and the banks want to make their profits which they do using this archaic systems.

Reply to
Neaco

It's completely meaningless to bandy about a figure of £20 without relating it to how much the total interest payable would have been, and how long the original term would have been.

Of course interest is front loaded, because you're paying off the debt more or less linearly, and so because you owe 24 times as much money during the 1st month of a 24 month loan as you do during the last month, you should expect to pay of the order of 24 time as much interest for the first than for the last month. The effect of what's sometimes called the "rule of 78" is that you should liken the total interest which would have been payable according to the original plan to the area of a triangle of width the total number of months, and of height any convenient number on the left, and zero on the right. If you repay at half term, you only save that part of the interest in the right hand "half" of the triangle, which is roughly a quarter of the area.

Reply to
Ronald Raygun

I'm probably going to wish I hadn't posted this but anyway... Isn't is "just" a case of applying the compound interest formula to the amount remaining to be paid? I accept I may be talking cr** - if so, how?

Reply to
dave

You are. :-)

You can't apply some formula to "the amount remaining to be paid" because you don't know what that amount is, because that's what you're trying to work out.

Perhaps what you mean is: Can't you just add one month's interest to the initial debt, and subtract therefrom the monthly payment, to work out the amount owing at the beginning of the 2nd month, then repeat the process for the relevant number of months? In other words, if the lender had advanced £1200 over 12 months at a nominal 6% per year (0.5% per month), and if the monthly payments had been calculated to be £103.28, couldn't you just begin with X00 and then replace X by X*1.005-103.28 six times to work out how much was owing immediately after the 6th payment had been made?

And the answer is yes you could, but the lender might work it out by the rule of 78 instead. In other words, they'd say, look, 12 payments of £103.28 add up to £1239.36 of which £1200 is what was lent so the rest must be interest. Because the balance reduces linearly (so goes the fiction), you must pay 12 times as much interest for month 1 as for month 12. 12+11+10+...+2+1 = 78. So 12/78 of the total interest applies to month 1, 11/78 to month 2, etc. So, to work out how much is owing after the 6th payment, you'd take (12+11+10+9+8+7)/78 times £39.36, add that to £1200, and deduct the six times £103.28 which have already been paid.

The two methods will give roughly the same answer.

There may be yet other methods. But more importantly there could be handling fees added, which will probably make a bigger difference to the bottom line than the choice of method.

Reply to
Ronald Raygun

Many thanks for your thoughts everyone.

I think I need to contact Northern Rock ;o)

Reply to
Ronnie Davis

They usually abide by the law - which gives them a minimum rebate that is allowed, based on the 'Rule of 78'. [There is something like a single or two- month interest "penalty" allowed, but no more.]

"Neaco" wrote

Ah, I see - you are talking from (poor) knowledge of a single case, where you didn't even understand the numbers at the time. No wonder you've mis-understood the system! :-(

Reply to
Tim

Joined the thread late, so not sure if you already know this.

Some loans allow you to pay x% off additional each month/year.

If so, then if you do this, then the remaining additional 1 month interest they add on is calculated on a reduced amount giving a lower cost added to clear the loan.

This depends on your loan though.

AMO

Reply to
AMO

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