Credit Union loans vs Bank Loan Calculations

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Credit Union loans vs Bank Loan Calculations

Here are the procedures involved in calculating credit unions loans and bank loans calculations.

A loan rate by credit by credit unions is the same as the rate from some banks.

Let’s say that a 16% rate from the unions is equivalent to a 25% rate from the banks. This is a result of several commercial banks’ reducing balance rates.

Procedures for Calculating Credit union Loans

If you take a loan of 10,000 from the unions at 16% for 3 years, the calculation is done this way;

16% of 10k is 1600.
1600x 3 years is 4,800ghc (this is your interest which will be added to the principal.

So you have 10,000 + 4800 = 14,800. This is your total amount payable with interest.

To know your monthly payment, just divide this amount by the 36 months (3years)

You will be paying about 412 monthly for 3 years.

Procedures for Calculating Bank Loans

10,000 at 25%

Interest is calculated this way.

Say year 1, 25% interest will be 2,500.

Say you were making a $400 monthly payment. You would have made a one-year payment of around 5,000. The principle amount of the loan will be $5,000.
The interest rate for the second year will no longer be based on $10,000 but rather on the $5,000 that is still owing.

Eg., interest for year 2 is 1250, and interest for year 3 is about 800.

In all, total interest will be 4,550 (2,500 + 1,250 + 800).

The total amount payable with interest will be 14,550.

You can divide this by 33 or 36months.

You may be paying almost the same amount monthly as the unions.

Honestly, the reducing balance rate computation is more complex than what I have presented, but I hope it gives a fair idea.