Advices for Life


October 19, 2016 23:03

How to calculate the annual interest .

amount of interest paid by the borrower to the bank for credit facilities can vary considerably, depending on the method of repayment.Only properly calculating the annual interest and to objectively assess their financial prospects, you can select the optimal form of cooperation with the bank.Many banks offer the borrower a choice of repayment of the loan form.This can be an annuity or differentiated payments.

Real annual percentage does not always correspond to the request of the bank, so it is advisable to calculate the date of the contract.The amount of funds provided, which is the body of credit, to be deducted from the total amount to be paid.Return the sum specified in the schedule of payments, which is a mandatory attachment to the loan agreement.In this difference should also include all sorts of hidden commissions - payment for the loan servicing, removal and issuance of credit, perhaps, insurance payments.The result is divided by the number of months of the loan, then divide by the tota
l amount of the granted loan and multiply by 12.

annuity provides payments in equal installments over the term of the loan agreement.The ratio of the loan amount and interest is gradually changing in the direction of increasing the first component.Thus, at the beginning of the term loan principal amount of the annuity payment is interest, and the body will be repaid in small installments.Since the monthly interest charged on the outstanding balance, it is clear that the real annual interest rate will be much higher than claimed.This form of lending by banks is traditionally used for small consumer loans and auto loans.

When choosing a differentiated form of repayment by equal parts broken only body of the loan, the monthly interest charged on the remaining debt.The first payments will be high, is gradually decreasing due to intensive payments of principal, and therefore a significant reduction in interest on the remainder.

Obviously, differentiated scheme is more favorable than the annuity, but is only suitable to borrowers who have the financial ability to pay inflated initial payments.It is ideal for large-scale long-term loans.

Banks are interested in the annuity scheme of cooperation as effective for them.Therefore, before the conclusion of the contract it is advisable to require the employees of the bank account of alternative methods of repayment of the loan and make a decision, carefully analyzing the amount of annual interest of each of them.

objective assessment of the real annual interest rate and other financial risks ensures the successful repayment of the loan in the future.