# Calculating the credit expense rate

• Nov 30th 2012, 10:20 AM
JacobE
Calculating the credit expense rate
So I came to this equation
4950=416,67/(1+x)^(1/12)+416,67/(1+x)^(2/12)+416,67/(1+x)^(3/12)+416,67/(1+x)^(4/12)+416,67/(1+x)^(5/12)+416,67/(1+x)^(6/12)+416,67/(1+x)^(7/12)+416,67/(1+x)^(8/12)+416,67/(1+x)^(9/12)+416,67/(1+x)^(10/12)+416,67/(1+x)^(11/12)+916,67/(1+x)^(12/12)

Simple enough for someone who knows his or her maths but this is just too much for me. 4950 € is the credit that I got (or rather 5000 € but 50 € has been substracted as it was paid to make the loan deal itself). 12 equal monthly payments, the last one with interest included (500 €, nominal interest rate 10%).

So what would the actual credit expense rate (interest rate, if you wish) be? That is the 'x'.
• Dec 1st 2012, 07:51 AM
Wilmer
Re: Calculating the credit expense rate
Not sure what you're doing, Jacob: 416.67 * 12 = 5000

If 4950 is borrowed at 10% annual compounded monthly over 1 year, then monthly payment = 435.18;
you remit 435.18 each monthend for 12 months....then you're all paid up!
• Dec 3rd 2012, 11:45 AM
JacobE
Re: Calculating the credit expense rate
I'm actually using this formula Attachment 26038 but nevermind about that.

Point is, the monthly payment is indeed 416,67 € (1/12 of 5000 €) with the whole interest (500 €) being paid with the last payment. But actually finding the x turned out to be too much of a challenge given my level of mathematics.
• Dec 3rd 2012, 01:24 PM
Wilmer
Re: Calculating the credit expense rate
Quote:

Originally Posted by JacobE
I'm actually using this formula Attachment 26038 but nevermind about that.

Point is, the monthly payment is indeed 416,67 € (1/12 of 5000 €) with the whole interest (500 €) being paid with the last payment. But actually finding the x turned out to be too much of a challenge given my level of mathematics.

No idea why you'd use that formula! And this is the weirdest loan I've seen!

You're borrowing 4950 net.
You'll repay 416.67 for 11 months, then 916.67 as 12th and final payment.

For that to happen, the required rate is 18.5% annual compounded monthly.
That rate cannot be solved for directly: iteration (basically hit and miss!) required.

This is what the loan will "look like" in bank statement format:
Code:

```MONTH  PAYMENT  INTEREST  BALANCE 0                            4950.00 1      -416.67    76.31    4609.64 2      -416.67    71.07    4269.04 ... 11      -416.67    20.05    903.70 12      -916.67    12.97        .00```