Your car or truck loan may market interest that is low, however the real rate you’re paying could be two times as high.
A typical point of confusion, with regards to loans, could be the various ways interest percentage is calculated. This is also true when it comes to car loans – if you tally the total amount invested at the end of the loan, it seldom fits the advertised rate.
What Makes Car Finance Rates Higher Priced Than They Appear?
When it comes to auto loans, the reported rate of interest is totally different from the true interest (called the Effective interest, or EIR). Simply because car loans always utilize what’s called a Flat speed Method.
By having a Flat Rate Method, the quantity of interest you spend is fixed, in relation to the initial principal.
- You are taking away a motor auto loan of S$84,000
- T he marketed rate of interest is 2.78% p.a .
- The mortgage tenure is 7 years
Utilizing the Flat speed approach to calculation, the interest you spend is founded on the principal that is original of84,000 every month. Therefore the interest that is total over 7 years is:
2.78% x S$84,000 x 7 = S$16,346.40
Now, added to your initial loan of S$84,000, the total quantity you have to repay = S$100,346.40