for all accountants, and other bored folks - car loan calculation...
Can someone explain how the monthky payments for the car loan are calculated. I mean, I know how does it work.. but the showroom’s calculation and mine one are quite different. I would like to know why is that.
Example. “A” wants to take a loan for the car QR 45,000 with annual interest 4% for 60 months. How come that monthly payments (according to the showroom’s calculation) come up to QR 929? Based on my own calculation it should be around QR 845 a month.
I can prove that this amount is correct, and you tell me where I am wrong.
QR 845 x 12 month = QR 10,140 – paid off against the loan each year.
QR 45,000 x 1.04 = QR 46,800 – principal + interest for the 1-st year
QR 46,800 - 10,140 = QR 36,660 - balance after 1 year of payments.
QR 36,660 x 1.04 =QR 38, 200 - principal + interest for the 2-nd year
QR 38,200 – 10,140 = QR 28,100 - balance after 2 years of payments.
QR 28,100 x 1.04 = QR 29,250 - principal + interest for the 3-d year
29,250 – 10,140 = 19,110 - balance after 3 years of payments.
QR 19,110 x 1.04 = QR 19,900 - principal + interest for the 4-th year
QR 19,600 – 10,140 = QR 9,800 balance after 4 years of payments.
QR 9,800 – 10,140 = … more than enough… for 5-th year...
It shows that QR 845 a month will be more than enough to cover a loan of QR 45,000 with 4% of interest for 60 months. Why, based on the showroom’s calculation monthly payments are QR 929?
thanks.
That is exactly my point also. Principal and interest component varies in EMI as time progressess.
Any kinda loan has much more than compound interest
..**.. ""They walk among us. They vote & they even reproduce"" ..**..
you are right.
bankers have different terms and ways. The actual interest the way we know it would become around 10%. They call the 4% as "lumpsum interest".
And the management fees are not hidden. Actually it is called "management fees & file openning fees or loan care fees"
Anyhow, the monthly instalment you have to pay is good compared to CBQ calculations which came out to be 991 per month. Check http://www.cbq.com.qa/vlc.aspx
Eventually, one have to do a simple calculation by finding out the net extra amount to be paid against loan compared to cash payment.
in this case you cannot call these 4% "an annual" interest! or in other word, the annyal interest is not 4%! It's wrong to calculate 4% x 5 years = 20, and then apply these 20 to WHOLE amount of principal! Because every year your principal becomes less and less, so why you apply these 4% to the same 45,000 every year??
Listen, if the banks which give mortgages on propreties for 20-25-30 years calculated the interest the same way (4% x 25 years), it would be considered as a robbery... and actually in whole world the calculation on the loans is similar to one I gave in my example, the "progressive" one...
but here... it's not actually QR45,000 (since there are some hidden fees) and it's not 4% (since it's calculated this defective way)...
so may be let's call the things by their real names?
No need to ask the bank. Go to commercial bank qatar web site. visit the vehicle loan calculator and see the details for yourself.
Ask your bank to give you calculations and share it with us later
..**.. ""They walk among us. They vote & they even reproduce"" ..**..
Based on 4% Interest rate per year
45000 riyals
+ 1500 riyals processing fee
* 20% interest
= 55,800
/ 60
= 930
----------------------------------------
Based on 3.99% Interest rate per year
45000 riyals
+ 1500 riyals processing fee
* 19.95% interest
= 55,776.75
/ 60
= 929.61
----------------------------------------
Hope this solves your question.
amount and as time progresses, the principal amount in a particular EMI starts going.
Kelly is right, there are bound to be a hidden costs like processing fee, loan sanctioning fee etc etc
..**.. ""They walk among us. They vote & they even reproduce"" ..**..
The calculation is done as follows:
1. Add management fees which varies from bank to bank, but it is usually around 2000
2. Total base amount = 45000 + 2000.
3. Total interest = (45000 + 2000) x 4% interest x 5 years. Which means the total interest due will be 9400.
4. Total amount due = 45000 + 2000 + 9400 = 56400
5. Monthly instalment = 56400/60 = 940
SO, you are fine according to the showroom's calculations
Perhaps there is an additional fee for processing the loan which is added to the actual load itself.