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Loadstar 15
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015.d81
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simple interest
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2022-08-26
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SIMPLE INTEREST
In transactions involving simple
interest, the principal, on which the
interest is computed, does not change
throughout the term of the loan and
interest becomes due at either the end
of the term or at stated intervals
throughout the term of the loan.
As an example, suppose you were to
borrow $1000 for one year at 12%
interest. At the end of the year, you
would repay the $1000 plus $120
interest for the use of the money.
However, there is another method
which was commonly in use by car
salesmen and financial institutions,
until about 15 years ago, called
ADD-ON interest.
By this method, the total interest
for the term of the loan is
calculated, then added to the
principal. The loan is repaid in a
series of equal payments the amount of
each payment being equal to the
principal plus interest all divided by
the number of payments.
In the above example there would be
12 monthly payments of $93.33 per
month.
Verify that the actual annual
percentage rate (APR) on a one-year
loan of $1000 with 12 monthly payments
of $93.33 is at an interest rate (APR)
of 21.4% - not 12%. (Use the LOADSTAR
AMORTIZATION PROGRAM on this disk).
The ADD-ON method of lending is now
considered by the federal government
to be misleading and illegal as it
does not take into consideration the
decreasing balance as payments are
made.
If a lender quotes this type of
interest to you, beware (caveat
emptor).
To run the LOADSTAR AMORTIZATION
\oad"amortization",8
PROGRAM now, press "\".
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