i can't do the Maths!

[chirpychirpy]

PERSON ONE takes a cash loan of £7500 with 60 monthly repayments of £166.65, meaning (with a fixed rate of interest of 11.93%) the total paid pack will be £9999 including interest of £2499.

But PERSON ONE gives £6000 (of the £7500) to PERSON TWO. PERSON TWO does not need to pay the £6000 back. However, PERSON TWO must pay half the cost of the interest on that £6000 over the 60-month period.

How much must PERSON TWO pay to PERSON ONE altogether?

[sandyRoe]

6000 is 4/5 of the loan of 7500. person 2 needs to repay 2/5 of the interest. Call it an even thousand.

[SeaJayPea]

Well, unless I've really misunderstood your question, they'd pay half of the total interest i.e. £1249.50.

[sandyRoe]

Isn't person 2 only paying half of th interest on the 6K?

[chelle7272]

Yes sandyroe is correct

[ChuckFickens]

I think SJP has misunderstood the question.

6000 is 80% of 7500 so they would have to pay half of 80% of the interest.

80% of the interest is £1999.2 so half of it would be £999.6

[factor-fiction]

I agree with sandyRoe if I've understood it correctly.
I thinkSeaJayPea is assuming person two pays half the total interest whereas it's only the interest on the £6000.
I'm assuming person 2 would pay the interest in 60 instalments

[SeaJayPea]

I have misunderstood the question. Try again.

Total interest = £2499.
£6000 is 80% of the amount borrowed
Therefore the total interest due on the £6000 is 2499 * 80% = £1999.20
Half that is £999.60.

[ChuckFickens]

BTW..... can you loan me £6000 and I only have to pay you back £1000?

[SeaJayPea]

And I'm a qualified maths teacher.....

[factor-fiction]

Person 1 gets a very poor deal! They are effectively left to pay £1500 interest payments on a £1500 loan

[ChuckFickens]

Person one gets a worse deal than that, factor...

They are paying back £8999 for a £1500 loan!

[factor-fiction]

Yes, indeed- I'd forgotten the rest of the interest they were paying.
However I'd discount £6000 of the money as I assume that is being regarded as a gift.
The whole arrangement seems odd though

[factor-fiction]

^ Actually, if you regard the £6000 as gift, I stand by what I said before- person one is effectively paying £1500 interest on a £1500 loan

[Jonathan-Joe]

Chirpy asks how much PERSON TWO should pay OVER the 60 month period. This implies that they will make a repayment each month. If this is the case, answers above are incorrect as they assume a lump sum payment; they are also incomplete as none state whether the paymaant calculated should be paid at the beginning or end of the 5 year term- that makes quite a difference.
The maths for monthly repayments could be truly horrific, then parties may be better off agreeing a deal that seems fair to both and ignoring rates of interest.

[factor-fiction]

I disagree JJ- the above calculations already do reflect the agreed monthly repayment rate based. Provided both parties pay the repayments monthly at the same time as the lender seeks repayment