How TO Calculate Finance Charges Simply

March 19, 2010 - PRLog -- This is one area that you have some level of understanding of how to calculate finance charges both correctly and quickly.  Today you will find that most lenders will do this for you, but it can benefical to be able to check the math yourself especially when there are so many dubious lenders in the market. It makes sense to check it doesn't it?

As you are aware it is important, however, to completely understand that what is given to you here is a basic procedure for calculating finance charges and your lender may be using a more complicated method.You must understand that there may also be other issues attached with your loan which may affect the charges and the overall amount.
To see it the easy way visit http://www.financeauckland.co.nz

Firstly it is important that you understand is that there are two basic portions to a loan. The issue that we first come across is principal.  The principal is the amount of money that is being borrowed.The lender wants to make money for providing his services, or money and this is whats called interest. There are many types of interest from fixed, margin and variable. This article will examine simple interest calculations. To find the best then simply contact us today Finance Auckland.

With the very basic simple interest deals, the amount of the interest (expressed as a percentage) does not change over the life of the loan so if interest rates look like increasing this can often be a better choice. This is often called flat rate or fixed interest. This is by far and away the most popular loan, as this gives the client the opportunity to be able to budget a certain amount every week or month.

Simple interest formula is as follows:

Interest = Principal × Rate × Time

Interest is the total amount of interest paid.

Principal is the amount lent or borrowed.

Rate is the percentage of the principal charged as interest each year.

To do your math, the rate must be expressed as a decimal, so percentages must be divided by 100. For example, if the rate is 20%, then use 20/100 or 0.2  in the formula.

Time is the time in years of the loan.

The simple interest formula is often abbreviated:

I = P R T

Simple interest math problems can be used for borrowing or for lending. With this we are simply using exactly the same formulas.

When money is borrowed, the total amount to be paid back equals the principal borrowed plus the interest charge:

Total repayments = principal + interest

The repayments are normally paid back in regular money deposits, either monthly or weekly. To calculate the regular payment amount, you divide the total amount to be repaid by the number of months (or weeks) of the loan. This is the simplest way to calculate it.

If you wanted to convert the loan period, 'T', from years to months, you multiply it by 12. To convert 'T' to weeks, you multiply by 52, since there are 52 weeks in a year.

Below I will give you an example problem to illustrate how this works. This is very to use.

Example:

A single mother purchases a used car by obtaining a simple interest loan. The car costs $1500, and the interest rate that she is being charged on the loan is 12%. The car loan is to be paid back in weekly installments over a period of 2 years. Here is how you answer these questions:

1. What is the amount of interest paid over the 2 years?

2. What is the total amount to be paid back?

3. So you will need to work out what is the weekly payment amount?

You were given: principal: 'P' = $1500, interest rate: 'R' = 12% = 0.12, repayment time: 'T' = 2 years.

Step 1: Find the amount of interest paid.

Interest: 'I' = PRT

= 1500 × 0.12 × 2

= $360

Step 2: Find the total amount to be paid back.

Total repayments = principal + interest

= $1500 + $360

= $1860

Step 3: Calculate the weekly payment amount.

Weekly payment amount = total repayments divided by loan period, T, in weeks. In this case, $1860 divided by 104 weeks equals $17.88 p/week.

To find the best finance options visit us today Finance Auckland The experts when it comes to finance To see it the easy way visit http://www.financeauckland.co.nz