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Checking monthly payment figure from an online calculator

Posted on 2014-01-06
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Last Modified: 2014-01-14
Hi

I am looking at this online calculator and I confused where it gets its monthly repayment figure from.

Take 10,000 loan over 24 months with excellent credit (interest rate 2.64) and using flat rate of interest i get a montly repayment of 438.66 by doing this

((10,000 * 0.0264 * 2) + 10, 000 ) / 24

They get a repayment of £441. In fact their figures are always a few pounds higher. Please could you advise how they get a figure this high

Thanks a lot
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Question by:andieje
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7 Comments
 
LVL 52

Expert Comment

by:Scott Fell, EE MVE
ID: 39759021
Maybe they are not using simple interest and that will increase your payments.  Or the formula is wrong.
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Author Comment

by:andieje
ID: 39759078
What do you mean by simple interest?
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LVL 84

Expert Comment

by:ozo
ID: 39759148
Since the principle should decease as you pay it off, I would expect that the payments at 2.64% interest would be closer to 429.
24 monthly payments of 441 seems to imply about double that interest rate, or an extra fee of almost 300
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LVL 52

Expert Comment

by:Scott Fell, EE MVE
ID: 39759163
It's been a long time for this but....

Simple interest is compounded 1 time per year.  

I = p× r × t

10,000 * 0.0264 * 2(years) =528  
10,000+528=10,528
10,528 / 24 months = 438.66

Compounded interest takes calculates the interest at each period based on the balance.
FV = PV × (1+r)n
where FV = Future Value
PV = Present Value
r = annual interest rate
n = number of periods

Compounded annually
10,000 * (1+.0264)^2=10,534.97
10,534.97 / 24 = 438.96

Compounded monthly
10,000 * (1+.0022)^24=10,541.58
10,541.58/24=439.23

Compounded daily
10,000 * (1+.00007232876)^730 =10,542.17
10,542.17/24=439.28
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Author Comment

by:andieje
ID: 39760762
But thats what I mean...even with interest compounded daily you can't get a repayment of £441?? I dont know how they are getting it that high and the few pounds matter as the monthly payments feed into subsequent calculations. I dont want to assume it is erroneous but to me it implies a hidden fee like ozo said
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LVL 52

Expert Comment

by:Scott Fell, EE MVE
ID: 39760812
Do you want to let us know the site where you are seeing this?   Maybe we can look to see if it is done via js and the formula will be available.  Or they must have fine print someplace.

<<edit>>
I wouldn't rule out my math
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LVL 24

Accepted Solution

by:
Steve earned 500 total points
ID: 39765113
I would most likely put this down to a staggered first payment...

For example taking the loan on the 1st of Jan and not then making first payment until the 16th of Feb.
This partial month at the start is common to arrive at a first payment on a desiable date (such as a payday).

The attached workbook may help explain with a week of month one paid in month 2.

This is just what I think may explain it... but it could be dreaded PPI hidden in there!!!
interest-calculator.xlsx
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