Interest and Payment Question?

Question

I took out a loan for $1,500 to buy my mom a computer about 5 years ago. She promised to make the monthly payments, which she did for awhile before quitting and not telling me. The company sued me and I ended up signing an agreement in December 2006 to pay back the loan at the sum of $7,339.07, with interest at the contractual rate of 12% per annum from October 11, 2005 until paid, attorney fees in the amount of $734.00, and court costs in the amount of $241.00. According to the last document I received in December my balance was $8,528. 46. I started making payments in February of $400 a month which I was told has only gone to interest and not the principal as of now ($8,158.67). I was also told that I was being charged a rolling interest and thus could not be told my correct beginning balance. And that I would have to pay $650 a month to have anything go towards the principal. Is this accurate and how much will I need to pay a month in order to have this debt paid off in 2 years?

Answer 1

Assuming no other charges or a change in the interest rate you will need to pay $384.06 per month to pay off $8,158.67 in 2 years at 12% interest.

Based upon the information you provided $400 should pay the balance off in 23 months... so I do not know why they said that it is only going to interest. The fact that your principal balance has decreased is an indication that whoever told you that was incorrect.

They should always be able to tell you your balance. That is the law. The person may not have known how to work backwards to a beginning balance... but that is not the important issue.

If the interest fluctuates you may try looking for financing that will fix the interest rate. That would make it easier to get "on top" of the problem and feel compfortable that it will be apid off in 2 years.

If you have a home you might look into a line of credit on the home. The interest rate will be lower and it is possible that you can deduct the interest on your tax return.

Answer 2

Someone is LYING. There is no such thing as a situation in which they can't tell you your BEGINNING balance. At 12% annual interest (1% per month) $650 would be interest on $65,000. Even if I add the Attorney fees and the court costs to the December balance you state, and apply 2 months interest to the total, your balance before your February payment should not have been more than $9,598.50. One month interest on that amount would be only $95.99. $400/month should pay off the debt by May 2009. $490 should pay it off by the end of 2008.

Answer 3

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