Calculating real yield on bank loan

executivetouch · #1 May 4, 2008, 07:13 AM

Please explain the following excerpt I came across. I'm looking for the calculation.

.........When you compute the real yield on a 6.75% loan offer, you will find it is actually a 26% loan. (Because you're paying interest on 100% of the loan amount, but have only received 80% of the money from the bank, the rest is your own compensating balance being "loaned" back to you). Using the same formula, a 10% compensating balance brings the bank's effective loan rate "down to 15%. Anyway your cut it, that's a far cry from 6.75%.

The questions is how did they calculate 26%?

ebaines · May 5, 2008, 10:19 AM

I have no idea what this is about. You're going to have to provide some more information - what kind of loan are you talking, and is it contingent on you maintaining some sort of balance as collateral that you do not get interest on?



At Ask Me Help Desk you can ask questions in any topic and have them answered for free by our experts. To ask questions or participate in answering them you must register for a free account. By registering you will be able to: Get free answers from experts in any of our 300+ topics. Accept money for answers that you provide. Communicate privately with other members (PM). See fewer ads. Sign Up!