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Should bank lending rates be regulated?
Rank: Elder Joined: 3/2/2009 Posts: 26,333 Location: Masada
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@mwekezaji, what will be monthly instalment for kcb/equity/co-op loan of kes. 100,000 taken for a period of 60 months,reducing balance at 25.77% interest? Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Impunity wrote:@mwekezaji, what will be monthly instalment for kcb/equity/co-op loan of kes. 100,000 taken for a period of 60 months,reducing balance at 25.77% interest? 2,980.50 The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan
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Rank: Elder Joined: 12/9/2009 Posts: 6,592 Location: Nairobi
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mwekez@ji wrote:The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan Please explain that. I don't get how that affects anything. I say this because when the rate goes up you just pay more to the interest and less to principal reduction. For example If you were paying Interest: 20,000 Principal: 18,000 you find you're paying something like Interest: 30,000 Principal: 13,000 Whether reducing or not, you'll find that you are still left with a very high principal to repay. Or am I not getting it right?
BBI will solve it :)
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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2012 wrote:mwekez@ji wrote:The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan Please explain that. I don't get how that affects anything. I say this because when the rate goes up you just pay more to the interest and less to principal reduction. For example If you were paying Interest: 20,000 Principal: 18,000 you find you're paying something like Interest: 30,000 Principal: 13,000 Whether reducing or not, you'll find that you are still left with a very high principal to repay. Or am I not getting it right? @2012, Your figures sound like of a loan that has been completely restructured because they do not fit in Equated Monthly Instalments (EMI) or non EMI. When interest rates change, it’s the interest payment component that changes. Under EMI (which is what I gave in post 32), the instalments include both the principle and interest payment and so when rates change, you have to similarly change the monthly instalment if you intend to retain the same repayment period. Otherwise, you have to vary the repayment period if you intend to retain the same monthly instalment (like what most banks offered its customers to avoid defaults when rates shot above the roof). When rates go down it becomes a sweet song. In flat rate loans, it’s a different story.
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Rank: Member Joined: 11/21/2006 Posts: 608 Location: Ruiru
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mwekez@ji wrote:2012 wrote:mwekez@ji wrote:The beauty of a reducing balance rate pegged to base rate is that when base rate go down, the instalments will follow. Flat rate remains that for the whole tenor of the loan Please explain that. I don't get how that affects anything. I say this because when the rate goes up you just pay more to the interest and less to principal reduction. For example If you were paying Interest: 20,000 Principal: 18,000 you find you're paying something like Interest: 30,000 Principal: 13,000 Whether reducing or not, you'll find that you are still left with a very high principal to repay. Or am I not getting it right? @2012, Your figures sound like of a loan that has been completely restructured because they do not fit in Equated Monthly Instalments (EMI) or non EMI. When interest rates change, it’s the interest payment component that changes. Under EMI (which is what I gave in post 32), the instalments include both the principle and interest payment and so when rates change, you have to similarly change the monthly instalment if you intend to retain the same repayment period. Otherwise, you have to vary the repayment period if you intend to retain the same monthly instalment (like what most banks offered its customers to avoid defaults when rates shot above the roof). When rates go down it becomes a sweet song. In flat rate loans, it’s a different story. I agree, correct interpretation "..I am because we are. "― Ubuntu, Umtu,
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Rank: Elder Joined: 3/2/2009 Posts: 26,333 Location: Masada
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@putter (mwekezaji), we have a loan calculator at the bottom of co-op bank website, is that calculator based on a reducing balance or flat rate? Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Impunity wrote:@putter (mwekezaji), we have a loan calculator at the bottom of co-op bank website, is that calculator based on a reducing balance or flat rate? putter - golf  and its furahiday afternoon, i .... That calculator is based on reducing balance
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Rank: Elder Joined: 3/2/2009 Posts: 26,333 Location: Masada
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@putter, thank goodness that calculator is based on reducing balance. One question on my example above;what will be the monthly instalment for a flat rate? Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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Rank: Chief Joined: 5/31/2011 Posts: 5,121
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Impunity wrote:@putter, thank goodness that calculator is based on reducing balance.
One question on my example above;what will be the monthly instalment for a flat rate? 100,000 at 25.77% flat rate with a repayment period of 5 years works out as follows {(100,000*0.2577*5)+100,000}/{5*12} = 3,814.20
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Rank: Elder Joined: 3/2/2009 Posts: 26,333 Location: Masada
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mwekez@ji wrote:Impunity wrote:@putter, thank goodness that calculator is based on reducing balance.
One question on my example above;what will be the monthly instalment for a flat rate? 100,000 at 25.77% flat rate with a repayment period of 5 years works out as follows {(100,000*0.2577*5)+100,000}/{5*12} = 3,814.20 A whole 900 sirrings! This could be the method kina Jakoyo were against. This will be 9,000 sirring per month for 60 months if you had taken a METRE!!! (60*9,000) =  Portfolio: Sold
You know you've made it when you get a parking space for your yatcht.
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