The fact that it is paid in equal amounts doesn't prevent it from using compound interest; we get that only from the word "simple" that they used! Ordinary installment loans pay equal amounts, too.

Based on the answer, the 20% is not an annualratebut atotal percentageof interest. I've never heard that done, but I suppose it's literally what the words tell you!

So your calculation for the "balance to be repaid" is simplybalance + 20% of balance = 9360 + 9360 * 0.20 = 9360 + 1872 = 11,232

It could have been calculated merely as a 20% increase over 9360: 9360 * 1.20 = 11,232.

Taking 1/18 only makes sense if you take 20% as the rate for the entire 18 months, not an annual rate. And since you multiplied by 18 anyway, it was not needed at all.

The important thing about 20 vs. 0.2 is that 20% MEANS 20/100 (that is, "%" means "/100"), so that when you wrote 20% ... /100, you were being redundant. You can call it multiplication by 20%, or multiplication by 20 and division by 100, but not both. And just rewriting 20% as 0.20 is easiest.

Now, the remaining question in my mind is, did they actually teach you what they are doing? Have they told you anywhere that "paying simple interest that is equivalent to 20% on the outstanding balance" should be read as "paying 20% of the outstanding balance as interest"? And do they claim this is actually done in business? (You'll have to ask the others about that; I know the math far better than finance or the law.)

And what Denis (and tkhunny at first) were talking about is what would really be done for a typical installment loan, unless perhaps 18-month loans are often done without all that bother.

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