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Saving money thru the power of cluelessness

Earlier this year I had the windows in my house replaced. This cost more money than I had on hand, so I took the loan offered through the company who sold me the windows. Aside from an 11% interest rate, there were terms that would give me time to get a better loan at a lower rate, at which point I was going to pay off the original loan.

So, life happened and time went on. I was delayed in getting the new loan slightly, but managed to get it within a short time of the original loan beginning to accrue interest.

I called this morning to get the payoff amount for the original loan. They quoted an amount including $370 of interest. I said thank you, and hung up, ready to write a check.

Then I thought about it for a minute and realized that was way more interest than I expected, so I did some math. I computed it assuming either daily or monthly compounding, but no matter how I did it, I only came up with $160 of interest due.

$210 is a bit large of a discrepancy for me to swallow. I accept that I’m not a financial wizard, but that’s a rather big difference.

So I called back. I told them how I computed the interest and the difference I found, and asked them to explain what I was doing wrong. I knew it had to be something I was doing wrong, but I wanted to know what it was. She told me that the contract I signed was for an actuarial loan vs. a simple loan. I said, “ok. What does that mean?”

After being put on hold, the woman came back and said she’d have a loan officer call me to discuss. I said, “Great. I just want to know how the quoted payoff was calculated. Thanks.”

A few minutes later, the phone rang. It wasn’t the loan officer, it was the same lady again. This time she sounded tired… a little defeated. She reiterated that the contract I signed was for an Actuarial loan, but the loan officer decided to treat it as a simple loan, so my payoff would include just $160 of interest!

I was actually speechless for a second. A bank just ate $200 in revenue simply because I didn’t understand how an Actuarial loan worked, and they didn’t want to explain it to me. I’m positive that in reality they made no mistake in their calculations. They were legitimately owed the full $370. But simply because I asked how they got that number, I saved $210. That’s just awesome!

The lesson for today: if you don’t understand something, ask a question. Worst case scenario is that you’ll learn something. Or maybe you’ll save some dough!

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