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ELI5: how do bank loans work?
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How do loans work?
I understand the gist of a loan but how do they compute the math to figure out your payment? If I wanted a $1,000 loan and it had a 10% interest rate, and the life of the loan was twelve months what would my monthly payment be? A Google search says $87.92 but where does this number come from?
Top Comment: Let's break it down. There are a few elements that need to be explained here. I'll change the numbers to make the math a bit simpler. How interest works: If you took out a $1,000 loan to be repaid in 1 payment in 1 year 12% annual interest, you would have to pay $1,000 * 1.12 = $1,120. $1,000 "principal", and $120 "interest." Monthly vs annual interest: There are a few different conventions for how this conversion can be made, but a common one with easier math is to just divide the interest rate by 12. So a 12% annual interest rate becomes a 1% monthly interest rate. Paying down principal: You can make a table showing how interest and principal are paid, like this, for a 1 year loan of $1,000 paid monthly at 12% annual interest. Interest is the beginning balance multiplied by the monthly interest rate (which we calculated as 1% in step 2). Principal paid is the payment minus interest. Abbreviated table below: Month | Beginning Balance | Payment | Interest Paid | Principal Paid | Ending Balance | 1 | $1000 | $88.85 | $10.00 | $78.85 | $921.15 | 2 | $921.15 | $88.85 | $9.21 | $79.64 | $841.51 | ... | ... | ... | ... | ... | ... | 11 | $175.07 | $88.85 | $1.75 | $87.10 | $87.97 | 12 | $87.97 | $88.85 | $0.88 | $87.97 | $0.00 4) Okay, but how do you calculate the payment? Very basic answer: So, essentially you're solving for X, where X is the payment that makes the balance end at 0. A less basic answer: There's a formula: Payment = Present Value / [[1-1/(1+interest rate)^-Num. of periods] / interest rate] How is this derived? Well, it's pretty mathy but the key insight is that the payment stream is a geometric series which can be simplified. If you're interested it's a lot easier to look it up with google because writing these formulas is a huge pain on reddit and is not very readable.
ELI5 How American student loan debt works
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I saw a post saying that two people left school 23 years ago with a combined debt of 70k. They paid 500 USD monthly for 23 years and still owe 60k.
I'm thoroughly confused. obligatory not from America.
Top Comment:
Some payment plans have a required monthly payment that may be less than the interest charged each month, particularly for income based/driven plans for someone with a low income, and before the new SAVE plan.
This may result in a total balance that increases over time.
There are also situations such as reentering school or certain changes that add any existing interest to the principal balance
Payday loans on Ontario Works
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Does anyone know of a payday lender in Ontario that excepts Ontario Works as Income tia
Top Comment:
Please avoid payday at all costs. Nothing is worth the hell that a payday loan will become.
Student loan forgiveness, how it works
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What do you think?
More context.. https://www.facebook.com/share/p/FRua7Xw1suJfq1zU/?mibextid=WC7FNe
Top Comment: Love this. It's direct, simple, and makes a great argument. I paid off my loans over a decade ago. But I still want to see this help others that need it desperately.
Can someone explain how sigma.fi lending works
Main Post: Can someone explain how sigma.fi lending works