Assuming interest rate of 2.85 percent, 7 years (84 months) tenure and 90 percent financing margin for a vehicle costing $ 100,000:
Step 1
Calculate total balance payable to bank
Balance payable to bank = 90,000 x (1 + 7 x 0.0285) = $ 107,955
Step 2
Calculate monthly hire purchase repayment
Monthly loan repayment = 107,955/84 = $ 1,285.18
Step 3
Use this online financial calculator, and key in the values as such
Real monthly interest rate paid to bank = 0.4425 percent
Step 4
Multiply answer in Step 3 by 12
Annual interest rate paid to bank = 0.4425 x 12 = 5.31 percent
My own hire purchase agreement refers this as Annual Percentage Rate of Term Charges.
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Too lazy to follow the 4 steps above?
I thought so. Just click here to download the exact excel sheet I used to compute this. You only need to fill in the yellow cells and the rest of the calculation will be done for you.
Isn’t it a great feeling when you are able to demystify banks’ inner workings? 🙂 It’s actually no big deal for any certified financial planner (which I am) – you are welcome!
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can i use effective interest method to calculate my hire purchase interest *
* hire purchase agreement stated the interest is based on Flat Annum Rate