Derivation of the Loan Repayment Formula
I once took a loan of #1,000,000 at an interest rate of 24% per annum (or 2% monthly) from my bank. I assumed at the time that I would end up paying the bank a total of #1,240,000, with the extra #240,000 being the total interest. I expected to pay the sum of #103,333.33 monthly, with my last payment being at the end of the 12 th month. My calculation was as shown below; Assuming Loan taken = L, total interest = ti, annual interest rate = i, Total amount to be paid = T, and monthly payments = m, T = L + ti T = L + L x i (where ti = L x i) Recall that L = 1000000 and i = 24% So T = 1000000 + 1000000 x 0.24 = #1,240,000 Therefore, my monthly repayments will be, m = #1,240,000/12 = #103,333.33. However, at the end of the first month, my bank deducted approximately #94,559.60 from my account. At first, I thought they made a mistake. But then I imagined that these money-hungry entities might make mistakes crediting an account below the expected amount, but it is almost impossibl...