I have loaned £90,000 from my Father, I am to pay interest only on this amount. At 5%, for example, how do I calculate how much interest to pay him every month? Thanks for any any help and advice you can give.
It depends on the fine print in the agreement, but there probably isn't any.
The simplest thing is to assume 5% per year means a twelfth of 5% each month. If so, divide 0.05 by 12 and multiply the result by £90,000.
The more complicated option is to assume the intended monthly rate was that rate which would compound monthly to give an annual rate of 5%. In that case, take the 12th root of 1.05, subtract 1, and multiply by £90,000. This is a little harder, but will save you £100 a year. I wouldn't recommend it, as it would be perceived as taking an arm when offered a hand.
it depends on how often interest is calculated, either pay 0.382 per cent per month 43.80 or pay 4500 divided by twelve = 375
mrcheerful
mrcheerful
How do you get 0.382 percent?
divide the annual amount by 13.1 I don't know the maths for arriving at this amount, but worked it out from trying to match up credit card monthly payments with annual rates, so if the interest is 2 percent per month this will equal 26.2 percent over a year.
As this is a family loan I would offer the 4500 divided by twelve. And please, OP, get it in writing and agreed and signed and witnessed as things like this are a pain when someone dies or throws a strop or gets ill etc.
mrcheerful
Oh my God.
It doesn't work the same for different rates, though.
With the card, if the monthly rate is 2%, i.e. if the monthly growth factor is 1.02, then the yearly growth factor is 1.02^12 which is
1.2682 so the annual rate is 26.82%. That's not quite 26.2 but you must have worked with approximate data. If the monthly rate is 1.956%, for example, which is near as dammit 2%, then the annual rate is 26.22% which is close enough to 26.2%.But to get 5% for the year you need about 0.407% per month because
1.00407^12 is 1.04995.
so that would give interest of 4995 and a monthly payment of 416.25 over the year, as opposed to 4500 (375 a month) if the interest is added in one lump.
So it comes down to what agreement is reached !
I agree 13.1 is a rough and ready reckoner, but it works accurately enough for quick comparisons (I find)
mrcheerful
Back to the calculator, sonny. I make it £4395.60 and £366.30.
No, it is not accurate at all, except to a very coarse precision. The only reason it works is that it happens to be in roughly the right ballpark. Notice how 5/0.407 is roughly 12.3. All these numbers you would expect to be in the vague vicinity of 12, because there are 12 months in the year.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.