Credit cards are backed by loans which are typically broken into subaccounts to allow the issuing bank to treat different portions of your balance differently. Besides allowing for management of promotional balances, this is important for other basic functions where the bank needs to break down balances into different categories, such as grace periods for ...
The question conflates loans like bonds with loans like mortgages.
A bond works like the example, borrow $100,000 and pay $10,000 in interest each year. At some point, the borrower has to pay off the $100,000.
A mortgage is named such because the loan dies or ends (mort = root for death in romance languages). It is designed to have a constant payment ...
No, the low initial repayment fee is not how typical loan works. In fact, such loan repayments scheme is a leverage tool to encourage property flipping activities for under-development property to fuel property bubbles.
Using the $100k loan 10% interest 10 years loan for example, for a property that is still in development and only complete in 2 years, ...
What are some of the reasons a lot of loans work like this now?
Very simply: Regulations.
You won't find a loan where you get quoted an amount as interest. You won't find a loan where you get quoted a percentage as interest. Loans were regulated (to be more transparent) to advertise Annual Percentage Rate (APR). Further, banks were regulated on the way ...
In a comment, you provided the following statement - which I feel is critical to understanding where your logic is breaking down (when compared to typical modern lending practices):
You can stretch the repayments over multiple years and still keep the same amount
The point you're missing is that interest is presented as a rate. It has a numerator and a ...
For example, for a 100.000 loan with a 10% interest, basic logic would imply that you have to pay back 110.000.
No. The interest rate is usually given per year, so for each year I owe you 100,000, I owe you an additional 10,000.
But I don't owe you the full 100,000 all time long. If I pay you 20,000 at the end of the first year (10,000 interest and 10,000 ...
You're unlikely to be losing out
Unless the amount you repaid each month went down throughout the year, you wont lose out due to compound interest. This is because when the SLC receives the annual lump sum of payments that HMRC collected from you, they assume 12 equal monthly payments were made and retrospectively calculate the interest accordingly.
How to ...
You need to change your interest calculation as shown below.
I.e. the formula for cell C10 (and likewise for the rest of column C)
That is the correct way of applying compounding using a daily rate calculated from an effective annual rate.
daily rate, d = (1 + 0.0295)^(1/...
Under the assumption that the payment of $1800 due in 6 months would have completely repaid the loan if the $4200 had also been paid 3 months ago.
Note this totals $6000 and you want to know when $5800 would repay the loan, so $5800 would have to be paid fairly early.
If the monthly interest rate is
r = 0.02/12 = 0.00166667
The principal to be repaid ...
The closest direct equivalent is a Certificate of Deposit. CDs in the US require you to leave a given amount deposited for a specified term - often several years. You cannot withdraw the original deposit during the term of the certificate. The deposit earns interest, which can be deposited into the account or paid out on a fixed interval (usually monthly or ...
What percent of income going to interest is [...] Ideal?
It might have sense for the government to borrow as an inversion: with the money they have today they build infrastructures, public services, etc. that will in turn help the economy grow which will mean more revenue and less spending (e.g. social spending) in the future1.
You are not a government,...
11% of (Ontario) tax dollars go to pay interest
I am interested to compare with personal finances, would 11% of annual income as interest be reasonable? What percent of income going to interest is common? Ideal?
You're conflating good debt (building and maintaining infrastructure) with B-A-D BAD debt (living beyond your means).
Many personal finance guidelines recommend spending no more than 20% of your after-tax income on servicing debt.
Note that the 20% recommendation is for savings + debt combined. So as you pay off debt, whatever is left in that 20% goes towards saving. Once you are debt-free, continue to save 20% of your income. Step 3 = profit!