Jun 22 2018, 04:12 PM
QUOTE(cherroy @ Jun 20 2018, 04:32 PM)
Always use effective rate to compare, not flat rate.
Car loan/term loan use flat rate interest to quote and calculate, it is not an effective/real rate (EIR) to start with.
eg.
100K 5 years 3%.
Total interest would be 15K, means 3K each year.
The problem is not the 1st year, but later year.
After paying off for 4 years, you left with outstanding of principal balance of 20K,
But interest still 3K pa.
3K/20K = 15% <---- see where bank makes the most money from.
One is paying 15% interest rate without knowing...
EIR is the figure the average out (as first year it is really 3%) and real interest rate one is paying.
This is actually the accurate answer. EFFECTIVE RATE is the one we should look at. Not the flat rate.Car loan/term loan use flat rate interest to quote and calculate, it is not an effective/real rate (EIR) to start with.
eg.
100K 5 years 3%.
Total interest would be 15K, means 3K each year.
The problem is not the 1st year, but later year.
After paying off for 4 years, you left with outstanding of principal balance of 20K,
But interest still 3K pa.
3K/20K = 15% <---- see where bank makes the most money from.
One is paying 15% interest rate without knowing...
EIR is the figure the average out (as first year it is really 3%) and real interest rate one is paying.
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