Originally Posted by
ScottGem
You borrow 1000 at 5%. Lets say for example's sake that the first month you are charged .05%or $50. So now you owe $1050. Your payment is taken off the $1050.
Sorry to reply again but I just want to know if this is correct for my notes:
So doing the math with the example you've provided (the loan is $1000, the APR is 5%, and the term I'm assuming is 30 years), the monthly payment is $5.00. So instead of the balance being just the principal ($1000), it's the monthly interest, 0.42% (5%/12) and the principal combined. So that would make the balance $1004.20 (4.2, which is .42% of 1000 plus 1000). So now the portion of the $5.00 monthly payment that's interest accounts for 0.42% of the (balance plus interest ($1004.20)). So that would make $4.22 out of the $5.00 go to pay off the interest and $0.78 to pay off the balance, which is now $1003.42 (1004.20 minus 0.78).
Thanks for explaining in advance