Bank have forgotten to close loan!

[Tea & Coffee]

I took out a nerw loan in June for 4000, to close an old loan of approx 1800 and top up (well, pay off CC )

They forgot to close the old loan and put all the funds into my account. As I mainly bank online and it was Summer, I just spent away.... and was wondering why there were 2 different loan repayment amounts coming out of my account. On my online a/c, it showed an outstanding balance of 1300 (which I took to be the remaining balance on loan as I was ahem, doing such a great job with repayments) - I wouldnt be the greatest mathematical genius....

Anyway, I noticed (eventually) 2 payments were coming out a month. I called the bank and they admitted they forgot to close the old loan (but obv. it was my fault for frittering away the full amount sitting in my current a/c)

NOW: my question is this; as I don't underdtand interest at all.
They have offered to emalgemate the 2 loans: 1200 and 4000 at 5.7% over 5 years. She said it would cost a total of 6000 @ 115 per month repayments. How come it is so much? Is 800 the total interest over the term of the loan? And how come there is still 4000 remaining on the top up loan- surely my 6 months of payments should ahve reduced that amount- it wasnt an interest only loan...

My pal, who is a tax consultant, says I should ask them to calculate the new interest rate from the time the loan was taken out in June and take the loan over a shorter period, as even though they have reduced the rtate from 8.7% to 5.7%, I am saving nothing as it is over a longet term (was origianlly 2 years). I am so confused. I feel like I have been had in a way....

 

[GeneralZod]

Your post is a bit hard to follow but hopefully some of this will make sense.

NOW: my question is this; as I don't underdtand interest at all.
They have offered to emalgemate the 2 loans: 1200 and 4000 at 5.7% over 5 years. She said it would cost a total of 6000 @ 115 per month repayments. How come it is so much? Is 800 the total interest over the term of the loan?

€6,000 = €1,200 + €4,000 + €800 interest. That's how much interest you pay on a repayment loan for €5,200 of 5 years with fixed interest rate of 5.7% (the interest is €788 to be more accurate).

And how come there is still 4,000 remaining on the top up loan- surely my 6 months of payments should ahve reduced that amount- it wasnt an interest only loan...

Yes. If you've been making repayments against the €4,000 loan for 5-6 months it should be less than €4000. How much depends on the term you were repaying at. I'll guess 2 years at a fixed rate of 8.7% which implies the balance on this one should be down to about €3,060 or €2,900 depending on the exact number of repayments made so far.

My pal, who is a tax consultant, says I should ask them to calculate the new interest rate from the time the loan was taken out in June and take the loan over a shorter period, as even though they have reduced the rtate from 8.7% to 5.7%, I am saving nothing as it is over a longet term (was origianlly 2 years). I am so confused. I feel like I have been had in a way....

Your tax consultant pal is giving you good advice.

 

[shesells]

It's pretty standard for banks to pay the full loan into your account and leave it up to you to transfer the money to pay off the original loan.

Expensive lesson to learn!

 

[Perplexed]

5.7% is a great rate so I think you're doing ok on that offer.

 

[SidTheDweeb]

It's pretty standard for banks to pay the full loan into your account and leave it up to you to transfer the money to pay off the original loan.

Expensive lesson to learn!

I recently did a similar loan swap-over.
Old loan had a remaining balance of ~3k
New loan ~10k
Transferred ~3k into old loan account. It was paid off.
The following month the old loan account took it's typical repayment - obviously I had forgotten to cancel the DD.
Surprisingly enough later in the same month the money was recredited to my account and the old loan account was closed down. And I didn't have to lift a finger!