I am doing some research on interest rates payable on home, car, computer, study and other loans.
Can you send to kinlian@gmail.com the details of loans that you have been offered recently as follows:
Date of offer
Financial Institution
Amount of loan
Purpose of loan
Number of repayments
Amount of monthly repayment
I will analyse the effective interest rate that you are paying for the loan.
Showing posts with label Interest rate on loans. Show all posts
Showing posts with label Interest rate on loans. Show all posts
Wednesday, February 3, 2010
Monday, February 1, 2010
Car loan for 60 months
Dear Mr. Tan,
I am responding to your post on your blog - which is always a great pleasure to read and to follow, by the way.
Date of offer: July 2009
Financial Institution: (insurance company)
Amount of loan: $55,000
Purpose of loan: car loan
Number of repayments: 60 months
Monthly repayment: $1,031 for 59 months, and $1,048 for the final month.
The interest rate which they quoted me was 2.5%, and I would like to find out what is the effective effective interest rate.
REPLY
The total amount that you have to repay is $61,877. After deducting the loan of $55,000, you are paying interest of $6,877 for the 5 years. This works out to a FLAT interest rate of 2.5% per year.
However, as the loan reduces over the period of 5 years, the effective interest rate is higher, at 4.73% per year. I consider this interest rate to be acceptable for a 5 year loan.
I am responding to your post on your blog - which is always a great pleasure to read and to follow, by the way.
Date of offer: July 2009
Financial Institution: (insurance company)
Amount of loan: $55,000
Purpose of loan: car loan
Number of repayments: 60 months
Monthly repayment: $1,031 for 59 months, and $1,048 for the final month.
The interest rate which they quoted me was 2.5%, and I would like to find out what is the effective effective interest rate.
REPLY
The total amount that you have to repay is $61,877. After deducting the loan of $55,000, you are paying interest of $6,877 for the 5 years. This works out to a FLAT interest rate of 2.5% per year.
However, as the loan reduces over the period of 5 years, the effective interest rate is higher, at 4.73% per year. I consider this interest rate to be acceptable for a 5 year loan.
Sunday, January 31, 2010
Cash loan - 16% effective rate
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.
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.
Friday, January 29, 2010
Buying consumer goods on installment payment
A furniture store advertised several products, e.g. television, notebooks, computers, furniture, cameras for sale on cash or weekly installments over 48 years.
Here is an example:
Notehook: cash price $1,299
Weekly installments over 4 years (i.e. 208 payments) of $11.87
Here is my calculation of the interest charges:
Total payment over 4 years: $2,469
Cash price: $1,299
Interest charge: $1,170
Annualized interest rate: 36%
Using installment payments, the customer has to pay almost twice of the cash price. The interest charge is almost as much as the cash price. The same formula is applied consistently on all of the products offered on weekly installments
By saving in advance and paying cash, the customer can save a lot of interest charges. It is important to save and pay cash, rather than buy consumer products on installment payments.
Tan Kin Lian
Here is an example:
Notehook: cash price $1,299
Weekly installments over 4 years (i.e. 208 payments) of $11.87
Here is my calculation of the interest charges:
Total payment over 4 years: $2,469
Cash price: $1,299
Interest charge: $1,170
Annualized interest rate: 36%
Using installment payments, the customer has to pay almost twice of the cash price. The interest charge is almost as much as the cash price. The same formula is applied consistently on all of the products offered on weekly installments
By saving in advance and paying cash, the customer can save a lot of interest charges. It is important to save and pay cash, rather than buy consumer products on installment payments.
Tan Kin Lian
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