...sigh... simple interest. Look it up and educate yourself if you don't understand... preferably before you sign any sort of contract. Yes, you will be charged additional interest for not paying on your due date. ON your due date. NO, that is not illegal, as it is in the terms of your contract, so hows about you read that ol' contract before you sign it because whether you read it or not, if you sign it, you agree to all the terms and conditions. I am not a finance guru, I manage my own finances pretty, okay... my bills get paid and I have a little in savings. I am baffled at the lack of understanding that most adults have about financing. My job gives me the opportunity to speak to people with the more serious concerns about their car loans. Almost DAILY, i am told that the company I work for is a bunch of thieves... here's why. (I will preface this next part with my company, unlike many other large corporate America companies is actually quite fair to the customers and most of the time goes over and beyond what they legally, and ethically are required to do to assist their customers)
Simple interest: For Dummies--- So you have get a loan for $5000.00 for 3 years. your interest rate is 5%. The total amount of interest you will pay is $750.00. The way to determine how much of your monthly payment will be applied to interest is like this... now focus, cuz you can get lost, but it is actually really easy.
Ok - let's say your monthly payment is due on the 15th of each month. SO!!! here we go.
You get the loan on 12/8/12 - interest starts THAT DAY! You make your first payment on 1/15/13. You will take your loan balance (which DOES NOT include interest) and multiply that by your APR. So... 5000 x .05 = 250. Now, divide that by 365(the number of days in the year) this will equal your daily interest rate (also known as a per diem) That comes out to be about 68 cents. That means that for EVERY day since 12/8/12 to 1/15/12, your account has accrued $25.84 in interest.
You still with me?
So your monthly payment is $200.00 - of that $200.00, $25.84 will go to interest and the remaining $174.16 will go to reduce your loan balance.
So, now your loan balance is $4825.84. And the cycle starts over. $4825.84 x .05/365 equals about 66 cents per day. You make the next payment on 2/15/13, 31 days since your last payment. $20.46 of your next $200.00 payment will be interest. $179.54 applied to loan balance - leaving a new loan balance of $4646.30. AND then begin again.
IF you make your payments more frequently you will pay less interest than the contracted amount... if you pay after your due date, you will pay MORE interest than your contracted amount.
Reasons why this is legit.
A) You signed a contract. Your contract explains this to you. Even is you don't read it all, or understand that this is how simple interest works, YOU SIGNED THE CONTRACT STATING YOU AGREE TO THE TERMS AND CONDITIONS OF THE CONTRACT!
B) The interest(also known as the finance charge) is calculated based on the idea that you will make your payments on time. If you are smart, you will do that, or pay early/bi-weekly. Also, make sure there is not prepayment penalty.
Look all I am saying is, as adults, we deal with finances/financing on a daily basis. please take the time to understand it. You don't have to be good at it, you just have to understand your responsibility in signing a contract. There is NOTHING in this world that is so amazing or worth while to not understand the ramifications of your decision in getting that item.
Whatevskis.
I am down 52 lbs. WOOT!
No comments:
Post a Comment