Understanding Bank Interest Rate

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This topic is very vital because many have gone into debt because of its misunderstanding. There was a day I entered my bank to take a loan. I actually needed the money for a particular business, neither to pay rent nor to eat.

However, what actually attracted me was the single interest rate, like 2%. I already possess the knowledge that to take a loan in bank, the interest is always a 2–figure like 20%, but if it is interest on Savings account, it is a single digit like 4%.

Whenever you see an interest rate, the question you need to ask yourself is that: “IS THE INTEREST PER ANNUM (P.A) OR PER MONTH (P.M)?” For instance, when I wanted to get a loan because, it was 2% (a single-digit interest rate) instead of double-digit interest rate, though I was cautioned because of my prior knowledge that interest on loan is always a double-digit interest rate, this made me to probe further on the interest rate of 2%, and I was told that it is 2% per month (p.m.).

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What is the implication of this? Assuming I want to take a loan of 100,000 (in whatever currency) on 2% interest rate for a year, it therefore means I am going to pay back 2% of 100,000, which equals 2000, then multiplied by 12 (since the interest is stated at per month) plus the original money taken as loan, that is, 100,000 plus 24,000, which equals 124,000 will be paid back.

This paid-back amount is now almost equal to when it is double-digit interest rate that is per annum (p.a). Let see if it is 20% p.a interest rate. The money that will be paid back will be 20% of 100,000 plus the original amount, that is, 20,000 plus 100,000, which equals 120,000.

Hence, whenever you want to take a loan, ask very well, whether the interest payable is stated in per annum (p.a.) or per month (p.m.). Wishing you a debt-free year!

 

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Author: Peter Adewumi

Peter Adewumi is an Amazon author of "Virtues for Riches" series, "Romantic, Inspirational & Motivational Poems," "Attributes of Successful Employees," "The End Matters Most," & "A Lonely Ward in a Comely World."

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