calculate interest for 2 different rates

katy123

i borrowed some money from my brother at a rate of 7% gross/AER in 1st jan 08, as rates have fallen over the months, we have agreed the rate would be 5% from 1st oct 08 (3months), we therefore want to calculate the total interest payable.

would it be this:
1000*0.07/12 for 9 months and then 1000*0.05/12 for 3 months?

=£52.50 (@ 7% for 9 months) + £12.50 (@5% for 3 months) totalling £65

also, if done in a formal way (statement) would it show 7% AER in the first 9 months then 5% for the final 3 months? or would it just show the average AER or 6.5% over the whole year? (£65/£1000)

Thanks

*interest paid annually

YorkshireBoy

The most accurate formula (to calculate your brother's 'loss') would be...

(Amount borrowed x 7% / 365 x n1) + (Amount borrowed x 5% / 365 x n2)

Where:

n1 = number of days the rate was 7%, and
n2 = number of days the rate was 5%.

You generally wouldn't see a 'breakdown' on your savings statement...unless you asked for it (and some providers make a charge for this if the original amount was correct).

Does your brother have a consumer credit licence and, if he's a tax-payer, is he declaring the additional income?

katy123

lol

it's only for a mere amount....plus its less than the real rate of inflation that i'm paying him.

I've never hear requesting a breakdown from banks too, but ive always been a little suspicious of banks (they probably rip you off with a few days of interest credit-lol)

just out of curiosity-how would one go about requesting a break down?

Thanks

sloughflint

YorkshireBoy wrote: »

The most accurate formula (to calculate your brother's 'loss') would be...

(Amount borrowed x 7% / 365 x n1) + (Amount borrowed x 5% / 365 x n2)

Oh YB, for the sake of 5 pence per £1000 borrowed, couldn't you just have said yes in this one instance?
Come on,it's not as though OP was checking bank calculations.

katy123 wrote: »

just out of curiosity-how would one go about requesting a break down?

The only time I've ever done it is when I've disagreed with an amount ( savings interest or mortgage balance) .I just phoned or wrote in.

Milarky

Off the top of my head, the compound rate is three-quarters of the way between the new rate (since October) and the old rate (rest of the year). That is 6.5%

(I really is as easy as that)

YorkshireBoy

sloughflint wrote: »

Oh YB, for the sake of 5 pence per £1000 borrowed, couldn't you just have said yes in this one instance?
Come on,it's not as though OP was checking bank calculations.

Bad night's sleep?

Give a man a fish, and you feed him for a day. Teach a man how to fish, and you feed him for life.

Happy New Year.

Hungerdunger

YorkshireBoy wrote: »

Give a man a fish, and you feed him for a day. Teach a man how to fish, and you feed him for life.

But if you gave a man part of a fish, would he notice that you had given him 274/366-ths of it rather than three quarters?

sloughflint

Hungerdunger wrote: »

But if you gave a man part of a fish, would he notice that you had given him 274/366-ths of it rather than three quarters?

I wasn't even going to mention the leap year aspect.

Sorry YB, I just felt that OP had the right idea and just needed confirmation. The difference is really so negligible.

YorkshireBoy

Hungerdunger wrote: »

But if you gave a man part of a fish, would he notice that you had given him 274/366-ths of it rather than three quarters?

Only in a leap year.