Joined: 09/May/2008
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Topic: EMI/Interest on loan Reducing or flat? Posted: 18/Jan/2010 at 8:30pm
Originally posted by 9StockPortfolio
Me too, now i consider myself leverage free because i have generated more than what i borrowed. The total profit has been locked in the FDs.Pvt. Banks offer loan at 17% monthly reducing for 4 years tenure. The effective flat rate comes around 9.6% pa. which I think quite good.
Your cost of funds is 17% in this case which is way too high for my comfort. I was looking for funds at almost half that rate.
Your cost of funds is 17% in this case which is way too high for my comfort. I was looking for funds at almost half that rate.
This 17% rate is monthly reducing. See the effective rate. For Rs.100000 loan amount, Tenure of 48 months,@17% (monthly reducing) EMI=2886 Total Interest = Rs.38504 Total Principle+Interest = 138504
That means every year you pay Rs. 9626 as interest. So yearly flat rate comes around 9.63% and monthly flat rate comes around 0.8%
If personal loan combined to Housing loan, then at 10.25%, flat rate comes around 6.76% for tenure 240 months.
Joined: 09/May/2008
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Posted: 19/Jan/2010 at 5:01pm
Originally posted by 9StockPortfolio
Originally posted by praveen
Your cost of funds is 17% in this case which is way too high for my comfort. I was looking for funds at almost half that rate.
This 17% rate is monthly reducing. See the effective rate. For Rs.100000 loan amount, Tenure of 48 months,@17% (monthly reducing) EMI=2886 Total Interest = Rs.38504 Total Principle+Interest = 138504
That means every year you pay Rs. 9626 as interest. So yearly flat rate comes around 9.63% and monthly flat rate comes around 0.8%
If personal loan combined to Housing loan, then at 10.25%, flat rate comes around 6.76% for tenure 240 months.
Thats an incorrect way of calculating. Since your balance is reducing your principal is going down every month and your av. balance over 4 years is 50K and you pay interest of 38.5 K on that. Looks mighty expensive to me.
It would have been a good deal if you were loaned 1L for entire 4 years (you only pay the principal at the end of 4 years) and the total interest amount over 4 years was 38.5K
was that explained by some marketing guy ? Its not 9%, its 17% only as in mathematics. You just paying early. You can't think of saying 9% over entire 1 lac while u have already paid up part of it.
By doing monthly interest calculation they add interest in principle which means they can charge interest on interest on monthly basis. They don't give u monthly interest on savings.
Monthly Reducing means, the principle you pay everymonth is reduced from the original amount, and next month interest is calculated on the remaining balance. where the question of interest on interest come here? Regarding calculation, it's simple maths i assume.
Principle=Rs. 2083 (100000/48(months) without rounding) Interest=Rs. 800 (100000/0.8%) EMI= 2883
0.8% interest is payble every month. It's as simple as that. No marketting guy is required to understand. Why people think all the time that Loans & interest means cheating?
Joined: 09/May/2008
Location: India
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Posts: 543
Posted: 19/Jan/2010 at 9:26am
Originally posted by 9StockPortfolio
Interest=Rs. 800 (100000/0.8%)
That is where the problem lies... After first month your principal amount is never 1L so why are you paying 0.8% interest on it..
Lets extend the logic. If someone loans you 1L now and ask for 95K next month and leave the remaining 5K for 47 months, would you still be willing to pay 0.8% permonth on the entire 1L?
I think we are digressing from the original topic here.. Would request basantji to make separate topic on this...
Joined: 14/May/2008
Location: United Arab Emirates
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Posts: 86
Posted: 19/Jan/2010 at 10:54am
This is the trick most bank guys uses while calculating interest and generally people don't understand it.
The way you are calculating around 9% flat is not correct.
You are not using 1L for four years so if u paid appr.76000/- after 3 year still you are paying 9626 pa for fourth year for balance 24000 which is more than 9% pa.
I am not convincing anybody here. but it's appreciated to understand the calculation first, then criticize. now tell me where is in above calculation interest is being calculated on interest?
Home loan is also calculated as Monthly rest, some banks like SBI calculate at daily rest. So do you mean they are even worst?
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