Dear Mr. Tan,
Financial Institution: (bank)
Amount of loan: $1500
Purpose of loan: Personal use
Number of repayments: 12
Amount of monthly repayment: $136.10
REPLY
You are paying a total interest of $133.20. This works out to 8.9% of the amount that you have borrowed. However, as you have to make monthly repayment, the outstanding balance of the loan reduces monthly. Based on the average amount that has been borrowed, the effective interest rate is 16% per annum.
The bank pays 0.5% to its customers on their savings. They charge 16% on loans given to other customers, giving a hefty margin to make a good profit for the bank.
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