Question about loan interest rates in Canada/USA
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I hope that the Rates quoted over there are nothing like the way rates work in the UK. 25% would get one of these :wtf: The only things you see that high here are some nasty store-cards and rates for companies tha tdeal with people who generally would not be able to get credit elsewhere. I have a loan at 6.5% and none of my credit card rates are over 14.9% Jon
Banks in Canada are pretty unfriendly to new people - they treat no-credit-history as equivalent to bad-credit-history. Guilty until proven innocent here. It sucks, but they don't probably have any better options - too many new immigrants are dodgy types and banks may have had bad experiences with them. Anyway my post was not about the interest rate as such - I m ok with a 25% rate. I am interested in how the interest is calculated. Leppie gave me a rough idea of how it's done and I did some calculations and it turned out that 25% is actually a decent interest rate for a short term loan. See my reply to Leppie where I've given the full set of calculations.
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I've seen loan companies advertise loan offers for people where they provide an interest rate. I was just wondering how this interest is calculated. Assume I take a loan for $3000 and the interest rate is 25% and that I am planning to pay it back in 4 months (4 installments). Is it going to be :- (1) 25% of 3000 = 750. Thus amount to be repaid is 3000+750 = 3750. So amount per installment = 3750/4 = $937.5 OR (2) 25% of 3000 = 750 for 1 year. So for 4 months it will be 750/3 = 250 (since 4 months is 1/3rd of 1 year) Thus amt to be repaid is now 3000+250 = 3250. Installment amt per month = 3250/4 = $812.5 Could someone tell me if it's (1) or (2) please? Thanks, Nish
Over here in the UK there are two ways that loan interest is calculated, and it's something that has caused problems for people in the past. Say your loan was @ 10% interest. It could be 10%, or 10%APR. There's a big difference in how much you pay back in the long-run. 10% APR is calculated on a monthly basis I think, so as you pay more of the loan off, the interest becomes less (this is all calculated beforehand, so you pay the same each month). With 10% (not APR), the interest is literally 10% of the amount you borrow. In your examples, APR would be (2). As I say, that's in the UK - but people have been "stung" before by seemingly low interest rates, but not realising it's not APR, and so end up paying more. Also, with APR interest rates, if you pay the loan off early you often save money as the interest will not have been added at that point - with non-APR, you still have to pay it all back including the interest. Make sense? I'm not a financial advisor (I'd have lots of unhappy customers if I were), but that's what I understand about UK rates.
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I've seen loan companies advertise loan offers for people where they provide an interest rate. I was just wondering how this interest is calculated. Assume I take a loan for $3000 and the interest rate is 25% and that I am planning to pay it back in 4 months (4 installments). Is it going to be :- (1) 25% of 3000 = 750. Thus amount to be repaid is 3000+750 = 3750. So amount per installment = 3750/4 = $937.5 OR (2) 25% of 3000 = 750 for 1 year. So for 4 months it will be 750/3 = 250 (since 4 months is 1/3rd of 1 year) Thus amt to be repaid is now 3000+250 = 3250. Installment amt per month = 3250/4 = $812.5 Could someone tell me if it's (1) or (2) please? Thanks, Nish
You're assuming the fine print allows you to pay back the full amount within 4 months. Check that there isn't a minimum loan period, penalties for early payment, loan exit fees and loan establishment fees. cheers, Chris Maunder
CodeProject.com : C++ MVP
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You're assuming the fine print allows you to pay back the full amount within 4 months. Check that there isn't a minimum loan period, penalties for early payment, loan exit fees and loan establishment fees. cheers, Chris Maunder
CodeProject.com : C++ MVP
Chris Maunder wrote: You're assuming the fine print allows you to pay back the full amount within 4 months. With 25% rate I bet the bank is praying that you never pay back the principal amount, just the interest every month (unless the inflation rate too high).[
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Thanks Leppie, I used your instructions and got this :- Interest = 25/12 = 2.083333%
3000 750 62.4999900 812.49999
2250 750 46.8749925 796.8749925
1500 750 31.2499950 781.249995
750 750 15.6249975 765.6249975
TOT 156.249975 3156.249975Hey, the interest I pay went down :-) Looks like 25% is not such a bad interest amount after all :-)
Here's the excel function: =PMT(0.25/12,4,3000) and that equals 4 payments of -789.46. xacc-ide 0.0.99-preview2 (now with integrated debugger)
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Banks in Canada are pretty unfriendly to new people - they treat no-credit-history as equivalent to bad-credit-history. Guilty until proven innocent here. It sucks, but they don't probably have any better options - too many new immigrants are dodgy types and banks may have had bad experiences with them. Anyway my post was not about the interest rate as such - I m ok with a 25% rate. I am interested in how the interest is calculated. Leppie gave me a rough idea of how it's done and I did some calculations and it turned out that 25% is actually a decent interest rate for a short term loan. See my reply to Leppie where I've given the full set of calculations.
Nishant Sivakumar wrote: they treat no-credit-history as equivalent to bad-credit-history. I experienced that here in the USA when I was much yonger and had did not have a credit history. However, a few yeras later when I was making $55K per year, it did not matter that I had not credit history, they had over $80K waiting for me for whatever my need in available credit card credit most at 12.5% although the first 6 months would be at 2.5%. This is how they snag people into going in over thier heads. The point here in the USA, is simply, you make enough money, no credit or bad credit does not matter. You make little money and have no credit history, it is the same as having bad credit. Rocky <>< Latest Post: Cool ASP.NET 2.0 feature! Blog: www.RockyMoore.com/TheCoder/[^]
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I've seen loan companies advertise loan offers for people where they provide an interest rate. I was just wondering how this interest is calculated. Assume I take a loan for $3000 and the interest rate is 25% and that I am planning to pay it back in 4 months (4 installments). Is it going to be :- (1) 25% of 3000 = 750. Thus amount to be repaid is 3000+750 = 3750. So amount per installment = 3750/4 = $937.5 OR (2) 25% of 3000 = 750 for 1 year. So for 4 months it will be 750/3 = 250 (since 4 months is 1/3rd of 1 year) Thus amt to be repaid is now 3000+250 = 3250. Installment amt per month = 3250/4 = $812.5 Could someone tell me if it's (1) or (2) please? Thanks, Nish
Not many loans work like that (at least in the US). They are amortized through a means of paying more interest up first, so that if you don't follow through with the loan, they get as much up front as possible. To really oversimply the issue, it would be like... 3,000 * (.25 / 12) = x ...where 12 is the loan term in months. According to this forumula, you'd pay about 312.50 a month for the loan to pay it off. But, the amounts (principal and interest) are adjusted according to a predetermined amortization table so pay less principal and more interest up front. Running it through one of my calcs I get a month payment of $285.13 I wish to got I'd get some info on amortizaton calcutions though. Most of the stuff I've read has always said "it's too complicated" which is just another way of saying the author doesn't know himself/herself. Jeremy Falcon
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Here's the excel function: =PMT(0.25/12,4,3000) and that equals 4 payments of -789.46. xacc-ide 0.0.99-preview2 (now with integrated debugger)
Heres a C function that works for all cases
/--------------------------------------------------------------- // Desc: returns payment for amt financed for num payments // Params:apr (percentage rate as whole num),num ( number of payments,amt (amount financed) // returns: the payment per period // requires math.h //--------------------------------------------------------------- double Calc_Payment3(double apr,int num,double amt) { double m1,m2,temp; temp=apr/1200; /* apr/12/100 */ temp+=1; temp=pow(temp,(double)num); m1=temp; temp=1/m1; m2=1-temp; /* base factor */ temp=apr/1200; m1=temp/m2; return(amt*m1); } //---------------------------------------------------------------Richard Suppose you were an idiot... And suppose you were a member of Congress... But I repeat myself. --Mark Twain -- modified at 16:29 Monday 10th October, 2005 -
Thanks Leppie, I used your instructions and got this :- Interest = 25/12 = 2.083333%
3000 750 62.4999900 812.49999
2250 750 46.8749925 796.8749925
1500 750 31.2499950 781.249995
750 750 15.6249975 765.6249975
TOT 156.249975 3156.249975Hey, the interest I pay went down :-) Looks like 25% is not such a bad interest amount after all :-)
Nishant Sivakumar wrote: Looks like 25% is not such a bad interest amount after all :omg: For a loan I would just walk away at 10%. I would expect a reasonable amount to be in the 5-7% range for an unsecured loan, and 4.75-5.75% for a secured loan. Given that it is short term, I would stick it on a credit card - Mine is currently at 15.9%, although I've got an offer in for a balance transfer at 5.9% so I'd transfer it after the month interest free grace.
My: Blog | Photos "Man who stand on hill with mouth open will wait long time for roast duck to drop in." -- Confucious
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Not many loans work like that (at least in the US). They are amortized through a means of paying more interest up first, so that if you don't follow through with the loan, they get as much up front as possible. To really oversimply the issue, it would be like... 3,000 * (.25 / 12) = x ...where 12 is the loan term in months. According to this forumula, you'd pay about 312.50 a month for the loan to pay it off. But, the amounts (principal and interest) are adjusted according to a predetermined amortization table so pay less principal and more interest up front. Running it through one of my calcs I get a month payment of $285.13 I wish to got I'd get some info on amortizaton calcutions though. Most of the stuff I've read has always said "it's too complicated" which is just another way of saying the author doesn't know himself/herself. Jeremy Falcon
This is the norm for auto loans and consumer loans - but not home loans etc.. We have to use it from time to time in certain States when figuring insurance payments. Its pretty simple. Here is a link to the process. Its called the Rule of 78's http://www.obre.state.il.us/CONSUMER/Tips/RULEOF78.HTM [^] Richard Suppose you were an idiot... And suppose you were a member of Congress... But I repeat myself. --Mark Twain
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Heres a C function that works for all cases
/--------------------------------------------------------------- // Desc: returns payment for amt financed for num payments // Params:apr (percentage rate as whole num),num ( number of payments,amt (amount financed) // returns: the payment per period // requires math.h //--------------------------------------------------------------- double Calc_Payment3(double apr,int num,double amt) { double m1,m2,temp; temp=apr/1200; /* apr/12/100 */ temp+=1; temp=pow(temp,(double)num); m1=temp; temp=1/m1; m2=1-temp; /* base factor */ temp=apr/1200; m1=temp/m2; return(amt*m1); } //---------------------------------------------------------------Richard Suppose you were an idiot... And suppose you were a member of Congress... But I repeat myself. --Mark Twain -- modified at 16:29 Monday 10th October, 2005Glad to see you changed the numbers :) I had a real WTF moment reading the email notification ;P xacc-ide 0.0.99-preview2 (now with integrated debugger)
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Glad to see you changed the numbers :) I had a real WTF moment reading the email notification ;P xacc-ide 0.0.99-preview2 (now with integrated debugger)
I originally posted an obscure method used by one insurance company that I pulled from my lib. Knew it was wrong when I saw the /400 . Richard Suppose you were an idiot... And suppose you were a member of Congress... But I repeat myself. --Mark Twain
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This is the norm for auto loans and consumer loans - but not home loans etc.. We have to use it from time to time in certain States when figuring insurance payments. Its pretty simple. Here is a link to the process. Its called the Rule of 78's http://www.obre.state.il.us/CONSUMER/Tips/RULEOF78.HTM [^] Richard Suppose you were an idiot... And suppose you were a member of Congress... But I repeat myself. --Mark Twain
Cool, thanks for the link. Jeremy Falcon
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I've seen loan companies advertise loan offers for people where they provide an interest rate. I was just wondering how this interest is calculated. Assume I take a loan for $3000 and the interest rate is 25% and that I am planning to pay it back in 4 months (4 installments). Is it going to be :- (1) 25% of 3000 = 750. Thus amount to be repaid is 3000+750 = 3750. So amount per installment = 3750/4 = $937.5 OR (2) 25% of 3000 = 750 for 1 year. So for 4 months it will be 750/3 = 250 (since 4 months is 1/3rd of 1 year) Thus amt to be repaid is now 3000+250 = 3250. Installment amt per month = 3250/4 = $812.5 Could someone tell me if it's (1) or (2) please? Thanks, Nish
I used the following program when comparing mortgages: http://www.definitivesolutions.com/aprcalc.htm Personally, I would save up for 4 months and pay cash, no calculations needed and you might get a discount :)