Calculationing the interest rate of you personnal money loan
I will explain how to calculate your interest rate from your personnal money loan from two different institutions. First, the bank, than second the loan sharks. To make it much easier to understand how to calculate as well as the differences between the two, I will use the interest rates that are usually used by each of them for most personnal loan.
Okay, first I will explain about how to calculate your personnal money loans from the bank or any legal financial institutes. Let's say that you borrowed from the bank, $10,000 with an interest rate of 4% annually, and a payback period of 5 years. The interest of 4% means that you will have to pay the bank an interest rate of 4% of the total $10,000 for each year until the payment is settled at the end of the two years. 4% of $10,000 is $400. This means that you will have to pay an extra $400 as the interest rate to the bank every year along with the initial amount borrowed.
To know how much you need to pay the bank each month for your personnal money loan, you will need to divide the total amount and the number of years that both parties have agreed on. This case, $10,000 divided by 5 years which is $2000. So add that amount with the interest rate you have to pay and you will get the annual amount you need to pay them which is $2000 + $400 = $2400. You will need to pay the bank $2400 every year for five years. The total that you will be paying after five years is $12,000. In conclusion, you can see that you are actually paying a total of $2000 in interests alone to the bank for a personnal money loan of $10,000 with an interest rate of 4% per annum, after the payment period of five years.
Please note that the interest rates and the payback period will vary according to circumstances and the economical health. The basic rule of thumb for the interest rates is that it is always slightly more than the interest rates that you get for your savings. That would mean that if your savings had an interest rate of 3%, the interest rates for loans would be somewhere around 4% to 5%.
Now I will explain how to calculate your personnal money loans from the loan sharks and those illegal financial institutes. Since there are two different types of payment methods used by them, which I had already shown you earlier, I will use two examples to show you the difference. First I will show the example with the first method, the one I called fixed payment.
Again, we will assume that you borrowed a personnal money loan of $10,000 from them with an interest rate of 20% every month for a one year period. It would mean that you would have to pay them ($10,000/ 20%) $2000 in interest alone, every month. The amount you will need to pay back each month from the original amount borrowed is ($10,000/ 12months) is $833.34. Because most of them just count it to a round number in the dollar value, most will require you to pay $834 to $835. Their usual excuse is so that it is easier for everyone to count. When you add everything up, that means that you will need to pay them a total of $2834 every month for one year. At the end of the payment, you will have paid $34,008. $24,000 in interest alone for one year! Doesn't look very appealing now does it?
Now I will show the example of the second payment method, the one I called the continuous payment method. Again, let's assume that the conditions are the same. Borrowing $10,000 with an interest rate of 20%. There is no period of payback agreed by both parties for this method. What will happen is that you will need to pay only the interest rate ($10,000/ 20% = $2000) for every single month until you are able to come up with a total of $10,000 to settle the debt. But most will require you to pay $12,000 in total as they will count the interest rate for that month with it. This type of payment can go on for many years, if you are unable to accumulate that total.
Again I would just like to remind you that the interest rates and payment scheme will differ depending on your country and the financial institute you are borrowing from. The variables and the interest rates that I have used for the examples above can be considered the standard for most places. Now that you know about what payment schemes are available as well as how to calculate them, please read the next few pages where I will explain to you about the dangerous tricks and techniques that those illegal financial institutes will use to trick you into paying them even more. This will helps you greatly the next time you are looking for any personnal money loan.
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