Interest Rates Might Not Be What They Seem
Two different tricks for hiding the true interest rate are shown in this section. One of the tricks is to hide costs from the borrower. The other trick is having the borrower pay interest on already repaid principal.
HIDDEN COSTS: DIFFERENCES BETWEEN CASH AND CREDIT PRICES
The owner of a midrange computer is trying to sell it for $44,000. The owner is willing to finance the sale for $8800 (20%) down and the remaining $35,200 at an effective annual rate of 8% for 15 years. The owner also requires $1200 in various loan-origination fees.
The monthly payment on the loan (principal and interest only, not including taxes and insurance) can be calculated as follows:
In talking with the seller, a prospective ...
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