Different Types of Interest Rate


When we are going to take credit, often we only asked of credit interest rates. In fact, that is also not less important is the type of interest rates. The large flowers are the same but have different interest rate types will mean.

Therefore, we must clearly understand the types of interest rates. There are three types of interest rates are used, namely:

- Interest rates flat.
- Effective interest rates.
- Interest rates annuities.

The flat interest or fixed rate is the interest that the magnitude of the still unfolding credit during the period. Regardless of the rest of the existing debt, interest payable remains the same size. So during the credits, mortgage interest and repayments of principal paid each month anyway.

The general formula of the flat interest rate

If
P = loan principal
I = the interest rate per annum
n = long credit in the month
Then:
Repayments of principal per month = P/n
Interest per month = P x (1/12)
Total interest paid = P x (1/12) x n

Example
John took credit for $ 120,000 with a credit period of 24 months with an interest rate of 12 % flat per annum. How many installments per month to be paid by John?

The loan principal is $ 120,000 per month is principal installment amounted to ($ 120,000 divided by 24 months) equals $ 5000.

Interest to be paid per month is $ 120,000 multiplied by 1% (interest per month) equals $ 1200.

So installment per month to be paid is $ 1200 + $ 5000 = $ 6200.

Flat interest rate is commonly used for short-term consumer credit such as credit cards, credit without collateral, and credit of the motor vehicle.

Interest rates flat impressed lower than the interest rate effective interest but actually flat comparable to approximately double the effective interest rate or interest rate annuity.

Different Types of Interest Rate

Get to know the effective interest rates
Principle of the calculation of the effective interest rate is:

- Principal repayments are fixed per month.
- Interest rate per month is calculated from the remaining unpaid debt.

Effective credit interest is calculated from the balance of the debt at the end of each month. As a result, the interest must be paid each month will vary in accordance with the remaining debt owned.

Because the balance of the debt each month should always decreases, then the value of the interest the debtor paid each month will be more refined. Consequently, the installment per month will be declined as well. The second month's installment will be smaller than the first month installment, third month's will be smaller than the installment of the second month, and so on.

For example, you have a debt of $ 120,000 with effective interest of 12% per year, with the principal repayments of $ 10,000 per month.

Then:
1st month interest rates are 1% x $ 120,000 = $ 1200
2nd month interest rates are 1% x $ 110,000 = $ 1100
3rd month interest rates are 1% x $ 100,000 = $ 1000
And so on.

The general formula of effective interest rates

If
P = loan principal
I = the interest rate per annum
n = long credit in the month
Then:
Repayments of principal per month = P / n
Flower of the month to j = (P - (j - 1) x Mortgage principal)) x (1 / 12)

Example
John borrowed the money in the bank for $ 120,000,000 effective credit with interest of 12% per year. Bank gives credit with a period of 60 months. What is the installment to be paid John?

P = $ 120,000,000
I = 12% per annum or 1% per month
n = 60 months

Repayments of principal per month = $ 120,000,000 / 60 = $ 2,000,000

1st month
Big flowers = ($ 120,000,000 - (0 x 2,000,000)) x 1% = $ 1,200,000
Installment = $ 2,000,000 + 1,200,000 = $ 3,200,000

2nd month
Big flowers = (120,000,000 - (1 x 2,000,000)) x 1% = $ 1,180,000
Installment = $ 2,000,000 + $ 1,180,000 = $ 3,180,000

3rd month
Big flowers = ($ 120,000,000 - (2 x $ 2,000,000)) x 1% = $ 1,160,000
Installment = $ 2,000,000 + $ 1,160,000 = $ 3,160,000

This is actually the effective interest rate is the interest calculation is fair because the interest is calculated from the remaining unpaid debt.

However, many people are not happy with this calculation because the number of installments should they pay every month is not the same.

Get to know the interest rate annuity
This annuity interest rate is actually a refinement of effective interest rate. The difference in interest rate annuity rates effective lies in the amount of installment per month. In the interest of effective, the amount of the installment dropped in line with the decline in interest being in the big annuity interest installments to be paid amounted to remain.

Interest rate annuity is usually used in the calculation of long-term credit to credit home. The principle of interest annuity that is great installment per month, and interest is calculated based on the unpaid principal.

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