crooked banks and loans / car loans?

Forgot to tell you. This is for a property which has a tenent already in hand for 3 years at a monthly rental of US $ 760/month. your advise will be appriciated.

I need the advice of you Financial Consultants.

I was offered a loan of US$ 100,000 at an interest rate of 8.5% per year. re-payment period is 5 years and the monthly installment is fixed at US$ 2052 x 60months. How does this work and should I go for it?

Thanks in Advance.

Hi CharanSanitwong, Would again differ with your opinion.Even though i have the cash, i still would go for a loan under certain circumstances.

Out here there are no taxation benefits but i do get taxation benefits on taking a loan back home - so i have taken loans back home.

Secondly my return on capital is around 15-20%. So i will always invest my capital to get this rate of return and wouldn't mind paying the 8-10% interest on borrowed funds.

:-)

Hi Withnail - I think you are right. We don't go for loans if we have the cash right. This is the standard thouugh out Asia. At least for the places I have been to.

i'm going to buy cash. aside from that there is no option.

my loan was 4%. in reality it's about 8.05%. if you add in the 1250 QAR processing charge, it comes to 9.2% (for a loan of 58500 QAR). if i sell my car after 2 years then there's a management fee of 1500 QAR to buy out the loan.

unless you can earn 10% in a reasonable risk security, you're better off paying cash if you can afford it.

i think this flat rate loan system is illegal in the west because this is the first i've seen of it.

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"Even a stopped clock gives the right time twice a day." Withnail & I

Dear CharanSanitwong, please refer to my mail explaining the reducing balance method and flat rate method which the banks conveniently use out here.

Sorry for bringing this to your notice but your actual rate of interest you are paying on your loan is 10.99% and NOT 5%. :-)

good explanation. all loans and mortgages work like example 2 in your post.

this flat rate loan is rubbish. it's legalized loan sharking. and i'm sure these banks go on an on about their muslim values too.

if they calculate my loan at 4% using this flat rate, then i'm sorry but the annual rate is 8%, not 4%.

crooks.

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"Even a stopped clock gives the right time twice a day." Withnail & I

so everybody knows how the banks in mid-east charges when it comes to loans but do we have any option than buying outright cash. Any input will be appriciated as I am looking for a personal loan now.

that's standard practice for loans and mortgages. same in canada.

but my point here is that the rate he said he gave me (4.1% annual, over 8% over total loan) actually ended up being over 8% (or over 17% over total loan.

this goes beyond customers not knowing how the loan/mortgage industry works. i know exactly how they work - what they told me was a flat out lie.

at 4% it's worth taking the loan and investing your cash. but at 8% annual (closer to 9.5% annual when you factor in the processing fee) it's not such a good deal anymore.

they attempted to double the rate (the annual rate) i was paying through the back door.

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"Even a stopped clock gives the right time twice a day." Withnail & I

INTEREST CALCULATION A FLAT RATE - THIS IS THE METHOD BANKS USE IN THE GULF

Suppose you took a QR 100,000 loan today at a rate of interest of 10 per cent for five years. You are to pay back QR 20,000 of the principal and QR 10,000 (10 per cent of the loan) every year. So you pay back QR 30,000 every year. Over five years you pay back QR 150,000. But notice, that the loan kept reducing over the five years as you paid back QR 20,000 each year, yet you went on paying interest for five years, as if you had kept the QR 100,000 for the entire term.

INTEREST CALCULATION ON REDUCING BALANCE

What if you paid an interest ONLY ON the amount you owed each year and not the entire one QR 100,000?

The first year you would pay QR 10,000 as interest, the next year you would pay QR 8,000 on a reduced principal of QR 80,000 and so on, till the last year, you pay only QR 2,000 as interest. Now you would have paid back QR 130,000 instead of QR 150,000 as in the earlier case.

The first case is a situation of a loan that charges interest at a FLAT RATE (banks in the gulf) and the second case is when the interest is calculated on a ‘reducing balance’ or only on the amount of loan left to pay and not the entire loan amount. A flat 10 per cent is equal to a reducing balance at 6 per cent per annum.

You should get a range of options in reducing balance loans. You get annual, quarterly, monthly, weekly and now daily rests. A ‘rest’ is jargon to indicate when the bank will recalculate the EMI based on the amount of loan paid back. Suppose you have a loan with an annual ‘rest’ then, though you pay a monthly instalment, your benefit kicks in only at year end. Meaning the bank gets free interest for 11 months. A monthly ‘rest’ will recognise the reduction in the loan amount on a monthly basis and a daily ‘rest’ will do it each day.

Hope this is all clear now else just forget it and be content that you are getting a 3.99% interest loan - hehe :-)

I took 58,500 for 48 months. paying 1510 a month. one year completed already. for me I simply divert my car allowance for the loan and end of the day I am the owner not the company. If I took the company provided car I will not get anything at the end.

Its highly unlikely that you are getting 5% interest at reducing balance method. Even the bank staff get around 7.75% interest rate. Send me your loan amount, tenure and monthly instalments and i'll give you your actual rate of interest.

Banks in the gulf region give a flat rate of interest which works to around 3.5-5% interest. If you calculate the EMI (equal monthly instalments) by reducing balance method, the actual rate of interest works out to 8% - 10%. Nobody is aware of it.

The demerit of this method is that the initial instalments go towards only the interest amount of the loan and not the capital. People realize this when they have to sell of their cars here within a year and their balance on loan is still their INITIAL CAPITAL amount and all their instalments paid were used towards reducing the Interest component.Thats when they complain to the bank who have clearly written all this in the agreement.(albeit in fine print).

All i can say is learn from other's mistakes

its a wierd way of doing things here but i just 'go with the flow'. it seams all banks do the same thing.

FYI...it took over 2 weeks to finally get the funds to the guy i bought the car from. From all the forms and approvals and paperwork required...a really long rediculous process.

if a rate is 4.5%, then that's what it is (annual rate). of course, when you look at the total interest you pay over the course of the loan it will be more than 4.5% since that is an annual rate and your loan carries over several years, but when you use a scientific calculator or Excel to calculate the rate, it factors all that in.

in my case, they told me 4.1%. that's an annual rate so after 4 years the total i would have paid over and above the car price is closer to 8.5%.

BUT - the 4.1% that he told me was rubbish. the payments they quoted me equated to a rate of 8% a year, which means that the total paid over and above the car is a bit over 17%.

i'm not sure what nonsense they are using to sell their loans, but whatever it is i believe they are taking advantage of people who are not familiar with this aspect of finance, and i think it would be illegal in canada.

buyers beware...

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"Even a stopped clock gives the right time twice a day." Withnail & I

and its the same story...heres how i see it.

the 4.5% is based on a flat fee of the loan. for instance if you had a 10,000 loan for a year the intrest paid for the loan would be 450.

when they use their variable 9% rate i think they describe it as follows..after the fist months payment you pay 9% on the balance...after the second month payment you pay 9% on the balance. so you can see that at the end of the term the interest you are paying is very low. it averages out to a flat fee of 4.5%.

someone please correct me if i am not getting it.

All in I pay 5% interest per year from Arab Bank. Al Ahli bank is even cheeper

you can go to commercial bank qatar web site and calculate for youself. all the details are there.

i get variable rates with mortgages, but a variable rate with a car loan - that's ridiculous.

and in this case, i don't think it has anything to do with that. he told me a rate, and gave me a monthly payment, and the two didn't match.

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"Even a stopped clock gives the right time twice a day." Withnail & I

Thats what the game of interest is all bout...they tell u something and u end up paying something...good u r in the Finance...line...u cud catch up with it...but then sometimes they tell u the loans on a Variable % and thats where the killer is...u start with say for ex bout 9% interest rates...when the market is dng good...and the buying power goes up then ur interest rate also heads up and u start paying bout 13% interest in bout an year's time...so another piece of advice ppl...always try to get a deal that says Fixed rate of interest...

Withnail, the next time we catch up...we need to talk bout Commercial and Personal Loan Interests...