# Hire Purchase Secret#1: How Bank Calculate Your Car Monthly Instalment

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!

## 2 thoughts on “Hire Purchase Secret#1: How Bank Calculate Your Car Monthly Instalment”

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2. can i use effective interest method to calculate my hire purchase interest *

* hire purchase agreement stated the interest is based on Flat Annum Rate