Loan Question, interest rate

[ViviTheMage]

dont get TOO ripped off on that mazda 3........

 

[Special K]

Originally posted by: KLin

Originally posted by: Special K

Originally posted by: dullard
Most loan calculators assume monthly compounding and monthly payments. This loan is daily compounding and monthly payments. Thus, most online calculators will fail.

I did a rough calcuation (it is complicated due to Feburary being only 28 days except for leap year, so it depends on which day you fill out the form), a payment of $440 every month at 0.02%/365 compounded daily will pay it off in 5 years.

In this case, compounding daily vs monthly adds about the same as if the interest rate was 1% higher.

How did you know it compounded daily? Was it just a matter of guess/check?

Also, a loan that compounds daily behaves like a savings account, correct? If so, wouldn't there be some easy formula to use to figure out the true interest rate, just as savings accounts use the concepts of APR and APY?

I ask because after reading your post, I suspect my car loan could be compounding daily as well, because when I plugged in the info into a standard payment calculator, I did not get the same numbers the financing bank has.

Just about all loans, credit cards, etc. compound on a daily basis. Every little bit counts if you're a bank.

Well mortgages must not, because all of the online mortgage calculators assume the interest compounds monthly.

 

[txrandom]

If your rate is 2%, the APR for daily compounding is still only 2.02%. Daily vs monthly compounding really doesn't make a big difference.

 

[txrandom]

First of all, your loan mentions 1.9914% as the yearly rate, which if compounded daily would come out to 2.0113% APR. The other part of your loan says 2%, so I'm not exactly sure which one to use. The difference won't be as staggering as the different between 2% and 3%.

Ok, I plugged it into my calculator:
Payments: 60
Interest Rate: 2
Present Value: 25000
Payment Periods Per Year: 12
Compounding Periods Per Year: 365
Payment At The End Of The Month

The first payment will either be due right when you get your loan or 30 days after. First is Begin Mode, latter is End Mode.

So based on all that, your payment should be $438.21

Monthly Compounding vs. Daily Compounding vs. Continuous Compounding really doesn't make a difference.

Let's say your yearly interest rate is 2%.

The effective interest rate with monthly compounding is: (1 + .02/12) ^ 12 = 2.0184
Daily Compounding: (1 + .02/365) ^365 = 2.0201
Continuous Compounding: (1 + .02/infinity) ^ infinity = e^.02 = 2.0201

 

[Slew Foot]

They grind you on the finance charge, 2K? I got my 08 Accord financed for $250. That's how they give you the low interest rate.

 

[QED]

Okay... finally had a chance to take a look at this and I think figured it out.

The interest being charged is 2%, but the reason the payments are higher than what you might expect is because the first payment isn't due until August of 2009! I didn't notice that the first time going through the documents.

By the time that first billing cycle end (in 441 days), roughly $605 will have been added to the balance in interest charges ($25,000 * 2% * 441 days / 365 days). Financing that $25,605 over the 5 years with a first payment in August 2009 will result that $448.80 monthly payment.

 

[Epic Fail]

Originally posted by: QED
Okay... finally had a chance to take a look at this and I think figured it out.

The interest being charged is 2%, but the reason the payments are higher than what you might expect is because the first payment isn't due until August of 2009! I didn't notice that the first time going through the documents.

By the time that first billing cycle end (in 441 days), roughly $605 will have been added to the balance in interest charges ($25,000 * 2% * 441 days / 365 days). Financing that $25,605 over the 5 years with a first payment in August 2009 will result that $448.80 monthly payment.

The obvious reason wins.

They probably advertised a no payment until year XXXX and the OP doesn't even know about it. An extra year of 25k loan at 2% interest is really sweet.

 

[AndrewR]

Originally posted by: Slew Foot
They grind you on the finance charge, 2K? I got my 08 Accord financed for $250. That's how they give you the low interest rate.

I noticed that, too -- it's like an upfront lease payment.

Also, OP, as someone mentioned above -- don't forget the sales tax on the car when you register. That will likely eat up any extra money you have from the loan.

 

[radioouman]

If your payments aren't due for a year, and you are taking out more money than the car is worth, you'd better make sure that you get gap insurance, so when that car gets wrecked, you aren't over a barrel.

And I hope that you plan to drive that car until the wheels fall off because you are going to be upside on that loan for a looooong time.

 

[MattCo]

Originally posted by: Joony
So I called them up and they said it was because it was 'simple day interest' which sounds almost like daily compounding.

Also, somehow the fact that I got it earlier relative to when they start sending bills somehow affects it.

After comparing it with some buddies who also got the same loan, the monthly payments are about right.

In the bottom right-hand corner it says interest accrues on an Actual/365 basis. (Daily)

 

[QED]

Originally posted by: AndrewR

Originally posted by: Slew Foot
They grind you on the finance charge, 2K? I got my 08 Accord financed for $250. That's how they give you the low interest rate.

I noticed that, too -- it's like an upfront lease payment.

Also, OP, as someone mentioned above -- don't forget the sales tax on the car when you register. That will likely eat up any extra money you have from the loan.

The 2K you are seeing is the TOTAL interest expense over the term of the loan-- it is not an initial finance charge (otherwise it would be reflected in the calculated APR) . It is one hell of a deal for a non-maker financed auto loan.

 

[dullard]

Originally posted by: QED
Okay... finally had a chance to take a look at this and I think figured it out.

The interest being charged is 2%, but the reason the payments are higher than what you might expect is because the first payment isn't due until August of 2009! I didn't notice that the first time going through the documents.

By the time that first billing cycle end (in 441 days), roughly $605 will have been added to the balance in interest charges ($25,000 * 2% * 441 days / 365 days). Financing that $25,605 over the 5 years with a first payment in August 2009 will result that $448.80 monthly payment.

People say I never admit that I am wrong. Well, I was wrong. You are correct, QED.

I goofed when rushing through the paperwork. I missed (1) the delay that you point out and (2) I had the monthly cost at $438, not $448. Opps. Thus, when my daily compounding math almost matched my mistakenly used monthly cost, I went ahead and posted prematurely.

Sorry for misguiding the thread, especially in the financial math area where I like to excel.

 

[jlee]

Why are you spending over $20k on your first car? 😕

 

[AndrewR]

Originally posted by: QED

Originally posted by: AndrewR

Originally posted by: Slew Foot
They grind you on the finance charge, 2K? I got my 08 Accord financed for $250. That's how they give you the low interest rate.

I noticed that, too -- it's like an upfront lease payment.

Also, OP, as someone mentioned above -- don't forget the sales tax on the car when you register. That will likely eat up any extra money you have from the loan.

The 2K you are seeing is the TOTAL interest expense over the term of the loan-- it is not an initial finance charge (otherwise it would be reflected in the calculated APR) . It is one hell of a deal for a non-maker financed auto loan.

Oh, yes, you're right -- my mistake in looking too quickly! It is a great deal.

The part I mentioned about the sales tax still stands though. 🙂

 

[DisgruntledVirus]

Originally posted by: JS80

Originally posted by: krunchykrome
A $25K mazda 3? 😕 are you nuts

lol i just noticed that too, the 2% interest rate distracted me

If you are spending that much on a 3, why not go for the MS3 for about the same amount?