Any one out there who knows how our banks compute their interest? For example,pple like barclays will offer you a loan,but when you inquire the repayments per month,you find it is more that the interest rate they have told you will result. I have tried to research in many sites in the internet and all have a formula such as the one found here.

For example,i inquired from barclays about a loan of 1.5m. They indicated the rate will be 18% p.a. and assuming i service it for 6 years,i will be paying kshs 36,510/- per month.

When I used the formula in all these sites it showed i am supposed to repay Kshs 34,211.69/- per month!

By the way,there is also an excel spreadsheet solution which yields exactly the same result as the formula. To find out what i am saying,open a blank excel,right click on any of the work sheet tabs at the botton and click the insert option from the popup. in the dialog that appears,select the 'Spreadsheet solutions' tab. There you will see the option called loan amortization. When you select it,you will get a worksheet solution that you can use to simulate any scenario.

Good guys,any one out there who can solve this puzzle?

check out www.irac.co.ke

@ popi

well,you have to factor in insurance cost (if it is unsecured loan)...

i think BBK charges 1% of the principal...

thus if principal is 1.5M then insurance is 15K which is added to the principal before amortization..

to arrive to what they are charging you p.m (36,510/-) then their effective rate is 20.30% reducing balance...

When you run so fast to get somewhere,you miss the fun of getting there... Life is not a race,so take it slowly....

@ popi

like i said insurance is normally computed and added to the principal (once)...

so it is also treated like a loan & you pay interest on it...

if you signed a loan of 1.5M then insurance at 1 % would be 15K thus the total amount to be charged interest is 1,515,000 for 72 months (6 yrs) at monthly repayment of 36,510...

with the above parameters then calculate the prevailing interest rate?

When you run so fast to get somewhere,you miss the fun of getting there... Life is not a race,so take it slowly....