Asked by Anonymous
if i barrow $3000 at a bank for 12% simple interest for 18 months how much are my monthly payments?
Answers
Answered by
Reiny
I don't think any bank in 2014 would use simple interest, but anyway ....
interest = 3000(18/12)(.12) = $540
(here is where the flaw comes in using simple interest. The $540 would be the simple interest on the full amount of $3000, but the balance is constantly decreasing since you are making payments)
Payment = (3000+540)/18 = $196.67
ACTUAL payment should be:
paym( 1 - 1.01)^-18)/.01 = 3000
payment = $182.95
With a payment of $196.67, the effective interest rate is closer to 21.6%
interest = 3000(18/12)(.12) = $540
(here is where the flaw comes in using simple interest. The $540 would be the simple interest on the full amount of $3000, but the balance is constantly decreasing since you are making payments)
Payment = (3000+540)/18 = $196.67
ACTUAL payment should be:
paym( 1 - 1.01)^-18)/.01 = 3000
payment = $182.95
With a payment of $196.67, the effective interest rate is closer to 21.6%
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