Cant work out the loan system...help please!

[Doug Laidlaw]

On Wed, 23 Sep 2009 05:54:52 pm ashhash wrote:
> Hey all
>
> Ive started using GnuCash for personal finance and cannot, for the life of
> me, work out how to enter my car loan into the system. ;p(
>
> The loan is say, $17,000.
> My Fortnightly repayments are $400 (higher than I need to pay to get it
> finished faster)
> The interest rate is 9.9% and the financier states that interest "is
> calculated on the daily reducible balance and charged monthly in arrears."
>
> I have tried the druid but it really doesnt help me, it doesnt seem to be
> flexible enough.
> It doesn't allow me to specify my repayments, instead it determines what it
> THINKS I should pay and it doesnt seem to cater for the interested
> calculation ive listed.
>
> Can anyone help me out?
>
> Cheers
> Ash
Just looking at the docs, the car loan is said to be just like the housing 
loan.  But when you look at the example for a personal loan, the calculator 
will tell you what the repayment needs to be, as you discovered.  It then goes 
on to say:

"But you need to know how much of this is Interest and how much is
      Principal to be able to do a proper bookkeeping. For this you need a 
      more powerful tool, something like the Calc module in Open Office, and
      in particular the PMT function."

It then goes on to show you a repayment table, without saying which method was 
used.

One of your issues seems to be that the interest is calculated on the daily 
balance, which changes every fortnight, but the interest is debited monthly in 
arrears.  That means that:

The balance for calculation of interest reduces fortnightly (26 times p.a.); 
but
The interest is added to the principal monthly (12 times p.a.), and then 
carries interest itself.

I don't know of any loan calculator which can handle any arrangement where the 
frequency of repayments and the frequency of interest calculation are so 
different.  If your financier gave you a repayment schedule, you would be better 
off going by that, and ignoring the druid.

(BTW, Quicken's mortgage calculator points out that the financier will probably 
round off figures differently from your program, so there will usually be a 
slight variance.)
HTH,

Doug.