I recently took up a personal loan. I do not have any financial background and I do not have any issue paying the loan but I am just curious on how they come out with some numbers.
To be precise, the loan in question is Standard Chartered CashOne Loan which you can follow the link for more details. To be honest it's not the best loan in town but I wasn't that wise at that time when choosing up a loan package. My bad.
Anyway, here are the numbers I have in the agreement letter I received last year:
Loan Amount: $9,800
Loan Period: 36 months
Actual Applied Rate: 7.5% per annum
Effective Interest Rate: 13.69% per annum
One time processing fee: $199 (So they actually reimbursed me $9,601)
Monthly instalment: $333.47
So follow these facts, I can deduce the following numbers:
Total Interest = $9,800 * 0.075 * 3 = $2,205
Hence, Total Payable = $9,800 + $2,205 = $12,005
So if I divide $12,005 by 36 months, I get $333.47 monthly payable.
So now, what I don't understand is, how do they calculate how much money is paid to the interest, and how much money is paid to the principal when I dump the $333.47 to the bank every month? What's the formula to this thing?
To illustrate this, look at the table below:
Month # Loan Balance Interest Principal Repayment
-------------------------------------------------------------------------
1 $9,800.00 $111.81 $221.66 $333.47
2 $9,578.34 $109.28 $224.19 $333.47
3 $9,354.15 $106.72 $226.75 $333.47
4 $9,127.40 $104.14 $229.34 $333.47
5 $8,898.06 $101.52 $231.95 $333.47
6 $8,666.11 $98.87 $234.60 $333.47
.......
.......
34 $978.02 $11.16 $322.31 $333.47
35 $655.71 $7.48 $325.99 $333.47
36 $329.71 $3.76 $329.71 $333.47
-------------------------------------------------------------------------
Total $2,205.00 $9,800.00 $12,005.00
Following the advertised table on their CashOne website, I noticed the interest column is calculated based on the remaining loan balance x a number
. This number is fixed throughout the 36 months, and hence I roughly (stupidly using excel) hand calculated it to be 0.01140924.
For example, for month #2, $9,578.34 * 0.01140924 = $109.28
and vice versa.
Question is, what is this number 0.01140924
and how do I get it from a formula? I believe it's a simple mathematical equation.
In addition, how does one come out with the EIR as 13.69% pa
? How do you obtain it via a formula? Is this something the bank decided or is it calculated based on the loan amount and tenor I chose?
I googled that EIR = (1 + i/n)^n - 1
but it doesn't seem to apply here? What am I missing here? I believe it's just some simple calculation but I can't seem to reach it.
Thanks!
Edit
If you are interested, here is the link to the excel sheet I managed to come out with, with all the calculations there. You can copy it for your own if you need to.
https://docs.google.com/spreadsheets/d/1JraULJMtPg81wiLqZKhFqo-Gs8efNgnwJLt73rfnAzc/edit?usp=sharing