Personal Loan?

Hi, my G.friend recently got a loan from one of the largest banks (a*b). I have only looked at the agreement yesterday and couldn't get my head around it.
She borrowed 12,000 at ~9% apr...she repays €301 per month over 48 payments (4yrs)
The cost of loan is ~2,500!!! Which works out at almost 20% of the loan.

This is seriously expensive I know...But how can u have an APR of 9% tho cost of loan(total int paid) is over 20%?
Has it got to do with compound int? I find this very confussing and she didnt understand this when she signed for it,I know!

Figures make sense to me. Plug them in here.

You are forgetting that she is borrowing for 4 years, not 1 year.

The total interest works out as 21% of the amount borrowed, that is correct, but this 21% is spread over 4 years.

corco2000 said:

Hi, my G.friend recently got a loan from one of the largest banks (a*b). I have only looked at the agreement yesterday and couldn't get my head around it.
She borrowed 12,000 at ~9% apr...she repays €301 per month over 48 payments (4yrs)
The cost of loan is ~2,500!!! Which works out at almost 20% of the loan.

This is seriously expensive I know...But how can u have an APR of 9% tho cost of loan(total int paid) is over 20%?
Has it got to do with compound int? I find this very confussing and she didnt understand this when she signed for it,I know!

Click to expand...

In year one she pays 9% of €12000 which is €1080.
In year 2 she will pay 9% of 12000 less what ever she has paid off the principal in year 1 (about €2.5K) which amounts to about €855 and so on for year 3 and 4.

And on a related point, did she look at other offers, especially Tesco, who are currently offering rates of 7.5% APR on their personal loans?

May not be too late to change her mind or refinance.

Woods, thank you I was trying to remember how compound int works.

Ccovich, I think she shuld defo take out a loan with say Tesco and pay off A*b loan, would surely make a saving.Goes to show you should always 'shop around'

It is a variable loan.

One caveat is that Tesco may be more selective about who they lend to (not implying anything), but no harm in trying.

EBS (members only), Hibernian, One Direct and GE Money also will do better than AIB, (all loans are actually underwritten by GE Money), but again, lending criteria may be more restrictive.

If it's a variable loan, there should be no penalty for early redemption, but have a look at the Ts and Cs if this is a route she is considering.

Incidentally, Tesco only offer fixed rate loans, but according to their site, their are no penalties for redemption, which is interesting.