if i barrow $3000 at a bank for 12% simple interest for 18 months how much are my monthly payments?

1 answer

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%