
Loan interest
Hi I was just wonder if u could help. I’ve got a loan as a tracking account I did my t/f today of the full balance of the repayment to the tracking ac from my current account. But how do I account for the interest? I can do an outflow from my tracking account to the interest category but then it’s leaving it that I’ve not budgeted to interest. If I budget the amount of interest it’s not correct either as it’s already gone out of my current account in the repayment?
Thankd
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I have a car loan. I keep the principal balance in a tracking account.
When I make my car payment from my on budget account, I enter it as a split transaction, either two or three splits.
The first split is the amount of principal paid, which is a transfer to the tracking account and gets categorized as "auto loan"
The 2nd split is the amount of interest paid which gets categorized as "auto loan interest" and is a regular budget line expense, not a transfer.
The possible 3rd split line is if I make any extra payments to principal, which is also a transfer to the tracking account, categorized as "auto loan" with a memo of "extra principal". You could add this in the first split line and only have two, I just like to see it broken out.
Every month, I budget separate amounts for "auto loan" and "auto loan interest".
Hope this helps!
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Coral Mixer said:
The payment included the principal AND interestThe distinction of principal and interest is a needless complication -- it's all lumped into "debt". Say on Dec. 20, your statement closes. In addition to all your other purchases, it lists "interest" for $whatever, yielding a combined total balance of $X. The fact $X came from groceries, airline tickets, interest, or whatever no longer matters. Nearly a month later, on Jan 17 your payment is due, which just reduces the account balance.
You're overcomplicating things trying to split your CC Payment. An interest expense is no different than any other purchase.
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Coral Mixer said:
I don't understand why I can't split the categories for the payment to cover principal and interest.Because the interest was incurred nearly a month prior and there should already be an outflow transaction for that amount in the CC account. Your CC balance increased accordingly at that point. Splitting your payment would double-count that amount.
Again, think of it this way: Interest == More Time To Pay The Piper. Feel free to rename the category if it helps. You buy groceries, you buy time, you buy an iPad, you buy whatever. They are ALL handled identically, and you should have money available in the category prior to the outflow.
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Coral Mixer said:
If I budget money for the interest and fees category to cover the "overspending", my budget reserves this money so that it can't be spent elsewhere. Yet it won't ever be spent because the interest was already covered with the payment.Ah, I think I see part of your confusion. Yes, budgeting for that interest reserves money so it can't be spent elsewhere. However, your payment covered the interest from the previous statement. That budgeting will reserve money that you'll use for your NEXT payment.
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Coral Mixer said:
I agree. I think I'll just keep things uncomplicated and get rid of the separate "interest and fees" category altogetherTo be clear, I was trying to get you to ignore the distinction of interest for your payment. I'd suggest you keep that distinction when interest was incurred; i.e., with an outflow transaction categorized to Interest dated the same day as your statement closed.
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OK, I just took a workshop and I think I understand now. I did have to reduce the amount budgeted for my payment by the amount of the interest to equal the total amount already paid.
I was able to understand by clicking on the "activity" amount by the credit card payment which showed me a breakdown of where the dollar amount came from (interest charged + purchases - payment amount = activity amount).
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Coral Mixer said:
I did have to reduce the amount budgeted for my payment by the amount of the interest to equal the total amount already paid.You didn't actually have to. Again, the money entering the Payment category from interest is for your NEXT payment. Moving that money obviously lets you do something else with those dollars, so it's your call if that something is more important to you than paying down debt.
In other words, you chose to move those funds to something more important. Hopefully. 😉 This is exactly the kind of trade/comparison YNAB wants you to make.