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Thread: [HELP] Loan Calculation: borrow $1000 for 1 yr @ 8% (if repaid in 1 yr)

  1. #11
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    Quote Originally Posted by Denis View Post
    Well, if it's a constant monthly payment loan,
    then the payment is 333.30; statement format:
    Code:
     #    PAY'T INTEREST  BALANCE
    00                   10000.00
    01  -333.30  66.67    9733.36
    ...
    12  -333.30  46.45    6680.38
    13  -333.30  89.07    6436.15
    ...
    24  -333.30  50.76    3524.81
    25  -333.30  70.50    3262.01
    ...
    35  -333.30  12.94     326.77
    36  -333.30   6.53        .00
    EDIT: whoops, used 10,000 instead of 1,000;
    just divide everything by 10: like pay't = 33.33
    Sorry 'bout that!!
    If this were a standard installment loan, the monthly payment (according to Excel's PMT function) would be $86.99 for our 8% one-year loan. My sense is that what is being done is a simplistic approximation of an installment loan, which is easier to calculate and to understand, and requires just a bit higher payment for short loans because it doesn't take the declining balance into account. I would not be surprised if it were common (somewhere?) for such short-term loans. I haven't yet taken time to research it.

  2. #12
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    Quote Originally Posted by Dr.Peterson View Post
    If this were a standard installment loan, the monthly payment (according to Excel's PMT function) would be $86.99 for our 8% one-year loan.
    Yes. Basic formula:
    P = Ai / [1 - 1/(1+i)^n]
    A = 1000
    n = 12
    I = .08/12
    P = ?

    P = 1000*(.08/12) / [1 - 1/(1+.08/12)^12] = 86.98842...

    If the rates were 24-16-8 instead of 8-16-24,
    then the pay't would increase to 37.04 from
    the 33.33 shown in my illustration.

    Anyhoo, we're running around the bush...
    The OP needs to be CLEARER.
    I'm just an imagination of your figment !

  3. #13
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    I found that the term for this kind of loan is "precomputed loan": the interest is computed for the whole loan as if it were not paid in installments, and this is added to the balance at the start.

    This should answer the OP's question; as I previously said, the formula is the simple interest formula, i = prt, where t is the total time for the loan; the payment is (p + i)/(12t), dividing the balance by the number of payments.

    I'm still playing with the other columns in the table, to figure out whether they are using the "rule of 78" or some other method to determine how much interest is owed at any time. But that is not necessary for the original question.

  4. #14
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    And, just for fun, we should remember that the Rule of 78's is illegal for some loans in some jurisdictions.

    Also, in all cases, a loan arrangement has an inherent or imputed interest rate, whether it is disclosed, or not. Lacking explicit disclosure, it may be difficult to determine which loans boarder on usury, loan-sharking, or simply theft.
    "Unique Answers Don't Care How You Find Them." - Many may have said it, but I hear it most from me.

  5. #15
    Elite Member stapel's Avatar
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    Cool

    It looks like the volunteers have done a lot of "suppose this" and "what if that". Has the original poster replied yet with clarification, so we know what s/he is supposed to be doing?

  6. #16
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    Quote Originally Posted by Dr.Peterson View Post
    I found that the term for this kind of loan is "precomputed loan": the interest is computed for the whole loan as if it were not paid in installments, and this is added to the balance at the start.
    You just took me back to the early 60's.
    Was working for a Credit Union.
    Ledger cards et al.

    Loans were set up this way:
    (I'll use short simple example)

    $1000 loan, payments $200 per month:
    interest calculated this way:
    on 1000 1st month, on 800 next month,
    similarly on 600, 400 and 200.
    If 12% (1% per month), interest calculation
    was made using above;
    1000 (.01) = 10
    800 (.01) = 8...then 6, then 4 then 2:
    Total of $30.
    Loan created for $1030; last payment $30

    If borrower decided to pay off after 3rd payment:
    owing 1030 - 600 = 430
    Unearned interest: $4 and $2 = $6
    Written by hand on ledger card:
    Owing.........: 430
    Unearned int: 6
    Net owing....: 424

    Good old days??!!
    I'm just an imagination of your figment !

  7. #17
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    Quote Originally Posted by Denis View Post
    Good old days??!!
    aka How can I get more interest up front and do nothing for the consumer?
    "Unique Answers Don't Care How You Find Them." - Many may have said it, but I hear it most from me.

  8. #18
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    Quote Originally Posted by tkhunny View Post
    aka How can I get more interest up front and do nothing for the consumer?
    Nope.
    It was actually the "cheapest" possible way,
    as there was absolutely no compounding.

    Whadda heck makes you say that?
    I'm just an imagination of your figment !

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