What interest am I paying?

ragin_cajuns

i am trying to figure out what interest i will be paying for a loan for a car.
i am borrowing $12,000 from my mother to buy a car and will pay her back $180 per month for 66 months. She pays me $27 per month for her portion of our phone bill and she will stop paying that to me during this time as the "interest" i will owe her. so 66 months x $27 is $1782 that i will be paying for her for the 66 months. so in the end i will pay back $13,782.

how do i figure out what interest rate that is to know how it compares to what i can get on a loan from the bank?

kyfdx

ragin_cajuns said:

i am trying to figure out what interest i will be paying for a loan for a car.
i am borrowing $12,000 from my mother to buy a car and will pay her back $180 per month for 66 months. She pays me $27 per month for her portion of our phone bill and she will stop paying that to me during this time as the "interest" i will owe her. so 66 months x $27 is $1782 that i will be paying for her for the 66 months. so in the end i will pay back $13,782.

how do i figure out what interest rate that is to know how it compares to what i can get on a loan from the bank?

$180 X 66 = $11880.

Are you borrowing $11880 or $12000?

If you are paying her $207/mo. on a $12000 loan for 66 months: 4.76% APR
If you are paying her $207/mo. on a $11880 loan for 66 months: 5.14% APR (on the $11880)

Of course if it's $11,880 that you are paying her back, then you just took $120 from your Mom... (lol)

ragin_cajuns

it's 12000 that i'm paying back (plus the $27 x 66). 66 months was rounded obviously. its 66.xxxx something. thanks

kyfdx

ragin_cajuns said:

it's 12000 that i'm paying back (plus the $27 x 66). 66 months was rounded obviously. its 66.xxxx something. thanks

Okay.. let's base it on 67 payments of $180+$27 = $207/mo.
Your 67th payment will only be $206.10.
The APR is approximately 5.25%

Advantages of using Mom Bank?

No lien on the title, making car easier to sell, when the time comes
Something happens to Mom? No more payments!
Need a root canal? "Mom, I don't have the $180 this month"

Disadvantages:
No reporting good payment history to credit agencies.
Typical Mom stuff about your life and expenses
Possible savings with a bank loan (iffy, though)

If you received 4% APR on a bank loan, the payment would be about $7/mo., lower, though you may have extra fees (origination, single payer insurance, lien fees, etc).

I like the Mom idea, assuming you and your Mom are on good terms, and you know you'll pay it back on time.

thebean

This situation is usually the basis for 4-5 cases on Judge Judy every season.  Normally, the payments stop and Mom repo's the car and hilarity follows.  Extra points if they are from Kentucky or Tennessee.

kyfdx

thebean said:

This situation is usually the basis for 4-5 cases on Judge Judy every season.  Normally, the payments stop and Mom repo's the car and hilarity follows.  Extra points if they are from Kentucky or Tennessee.

Watch your mouth there, Texas.. the "ky" stands for something.

thebean

kyfdx said:

Watch your mouth there, Texas.. the "ky" stands for something.

LOL.  You're right - I don't want to let my elephant mouth overload my hummingbird rear-end.