Calculating interest rates

[yogert909]

Sorry if this is a little OT, but this is the best place I can think of to ask this question.

 

I was studying my student loan statements and the interest seems to be a little higher than I would expect with my limited math skills. I can't quite wrap my head around the finer points of amortization, but I'd expect my monthly interest payment to be in the ballpark of Principal * APR /12. Is there something I'm missing? Consider the the numbers from one of my loans below. It seems that I am paying about 15% more than I should, and since this goes for several loans over many years, the difference could be thousands of dollars.

 

Principal: $2,892.19

APR: 7.940%

Their calculated interest: $22.41

My calculated interest : $19.14

 

Thanks

[ignoranceIsn'tBliss]

You'll probably have to look at the way that they capitalize unpaid interest. That's probably throwing off your math.

 

In the private loans that I work on: The interest is calculated daily. (interest rate/365) *principal = interest for the day. Then all that unpaid interest gets summed up at the end of the quarter, and it becomes principal as well.

[yogert909]

Thanks! I've sent an email to my loan company since I couldn't find any info on their website about how they compound. I seem to remember that they compound daily. You brought up something I hadn't thought about though - some months are longer than others.

 

I'm guessing that they are doing their math right. But I got worried when I ran my loan through an amortization scheduler and expected to pay around 100 / month in interest. Then I got my bill and found that it was almost twice what I expected.