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Credit Union over charging interest?

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  • 29-03-2012 9:23pm
    #1
    scoops22
    Registered Users Posts: 17 ✭


    Hi,
    I really dont know if this is in the right place but il see if anyone can enlighten me, maby I have it all wrong.


    Ive start noticing recently that my credit union load isnt falling much so began to look at my reciepts. The interest im being charged dosnt seem right.
    NO as I say maby I just dont understand this

    But when I pay 50 euro off the loan, approx 16 euro is going to interest. Thats around 30 %. My interest rate is supposed to be 10%
    Is there something wrong here?

    Any input would be appreciated.
    Thanks
    Tagged:


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    #2
    dudara
    Registered Users Posts: 33,518 ✭✭✭✭dudara


    Moved to Banking & Insurance & Pensions

    dudara


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    #3
    Anyone
    Registered Users Posts: 3,376 ✭✭✭Anyone


    scoops22 wrote: »
    Hi,

    But when I pay 50 euro off the loan, approx 16 euro is going to interest. Thats around 30 %. My interest rate is supposed to be 10%
    Is there something wrong here?

    Any input would be appreciated.
    Thanks


    Interest is charged on the loan balance, not on the amount you pay.


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    #4
    scoops22
    Registered Users Posts: 17 ✭scoops22


    Could you explain that? How is it calculated?
    Will the interest reduce as the loan balance reduces?


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    #5
    leeroybrown
    Closed Accounts Posts: 7,563 ✭✭✭leeroybrown


    scoops22 wrote: »
    Could you explain that? How is it calculated?
    Will the interest reduce as the loan balance reduces?
    A quick and dirty example. It's 'compound' interest meaning it accrues constantly based on the balance. Say you borrow €8000 at an annual interest rate of 10% and pay back €50 per week. At the end of week one you owe approximately €8015.39 (8000 principle plus (8000 * 0.10 / 52) interest). You then pay your €50 with €15.39 paying the interest and the remaining €34.61 paying the principle. For week two however you have reduced the principle to €7965.38 meaning that your interest will be slightly lower and a slightly higher percentage of your repayment will go on principle this week.

    A couple of years into the loan the principle is greatly reduced and the amount of interest you're paying is far less. For example in the above case with half of the principle repaid you'd only be paying approx €7.69 a week of interest and with three quarters repaid only approx €3.85 per week.


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    #6
    Anyone
    Registered Users Posts: 3,376 ✭✭✭Anyone


    Well, the interest is charged on what you owe. I'm not sure really how much more I can explain it.

    You are taking the interest as a % of the amount you are paying and saying that's the interest rate, which its not.

    As for your other question, yes the amount of interest you pay each week/month will decrease as your loan does, as Credit Unions charge interest on a reducing balance method. The quicker you pay off the loan, the cheaper it is.


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    #7
    westies4ever
    Closed Accounts Posts: 1,456 ✭✭✭westies4ever


    something to consider is when you pay. a lot of credit unions charge interest daily so its important to lodge on the same day each week or month.


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    #8
    Anyone
    Registered Users Posts: 3,376 ✭✭✭Anyone


    westies4ever wrote: »
    something to consider is when you pay. a lot of credit unions charge interest daily so its important to lodge on the same day each week or month.

    Its not that important, the interest difference is tiny, as you would have had to pay the interest anyway, so the difference in interest paid is a days interest of the amount you would have reduced the loan by(ie in the example about €35)


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    #9
    westies4ever
    Closed Accounts Posts: 1,456 ✭✭✭westies4ever


    Anyone wrote: »
    Its not that important, the interest difference is tiny, as you would have had to pay the interest anyway, so the difference in interest paid is a days interest of the amount you would have reduced the loan by(ie in the example about €35)


    it is important - as a cu employee i hear complaints constantly - why did my interest go up this week or month? Because last week you paid on tuesday and this week you paid on friday - thats three days extra interest. Because last month you paid on the 10th and this month you paid on the 25th - thats an extra 2 weeks. If this becomes a habit, the person is certainly causing themselves extra expense and potential arrears.


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    #10
    scoops22
    Registered Users Posts: 17 ✭scoops22


    leeroybrown wrote: »
    A quick and dirty example. It's 'compound' interest meaning it accrues constantly based on the balance. Say you borrow €8000 at an annual interest rate of 10% and pay back €50 per week. At the end of week one you owe approximately €8015.39 (8000 principle plus (8000 * 0.10 / 52) interest). You then pay your €50 with €15.39 paying the interest and the remaining €34.61 paying the principle. For week two however you have reduced the principle to €7965.38 meaning that your interest will be slightly lower and a slightly higher percentage of your repayment will go on principle this week.

    A couple of years into the loan the principle is greatly reduced and the amount of interest you're paying is far less. For example in the above case with half of the principle repaid you'd only be paying approx €7.69 a week of interest and with three quarters repaid only approx €3.85 per week.

    Thanks very much for that!!


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