How is the interest calculated when i take the loan?

[Tulips]

Why it is $5788 per day when i take $400,000 loan with p.a. 12%?

[La Penguiña]

Because the bank is making money off of you. Thats what they do. you pay back the full 400,000 and then 12% of the 400,000 on top of that so you'd pay overally 448,000

[Adventure Square]

The payback rates are fixed independent of the interest rate.
I assume the interest is calculated daily, but I don't know that.

If it is, then you would expect a 400,000 euro loan to earn one 365th of 12% on the first day.

12% of 400k euros is
>>> 400000 * 0.12
48000.0

or 48k, so that's what they'd make, in interest, if you paid nothing back, over a 1 year period (although this loan does not permit no-payment).

But on the first day, they should earn a prorated day's worth (if it's compounded daily, which is what I'm assuming)


>>> 400000 * 0.12 / 365
131.5068493150685

So the loan would go up about 132 euros, rising from 400,000 even, to 400,132. However you are required to make your payment of 5788, which is counted against the loan, reducing it. So the loan shrinks to 394,344.

It's also possible that they do continuous compounding or weekly or I don't really know as I haven't looked at the game behavior closely.

The short form is that the interest on a loan that's fairly short like this (a few months) isn't going to be very large compared to the total value of the loan. For a very quick estimate you can take the percentage of the year you'll owe it divided by two, since the loan will be decreasing the whole time period.


>>> 400000 * 0.12 * (75.0 / 365) / 2
4931.506849315068


Thus our rough estimate (it's an underestimate) is that the bank will make about 5,000 euros off you over the course of the loan.

The real problem is that you have to have the cash-on-hand to make your payments or things start to go south.

[Stew]

its still better then wonga's APR :-)

[Tulips]

wow, complicated.

[Adventure Square]

This isn't really any more complicated than loans normally are. Interest just works this way, and loans pretty much always have minimum payment schedules, as a way of ensuring that the money gets paid back. The only unusual things about this loan mechanic are the short timescale, the high rates, and the inability to pay more than the minimum payments to reduce the loan. (The first two are just part of accelerating the sense of time in the game, the latter is just an unnecessary game feature.)

[Fox]

Originally posted by Adventure Square:

and the inability to pay more than the minimum payments to reduce the loan.

Get a couple of well-paying jobs and you can repay the whole thing within a day or two anyway, meaning you have to pay hardly any interest at all.

[Tulips]

Originally posted by Rhymane:

Originally posted by Adventure Square:

and the inability to pay more than the minimum payments to reduce the loan.

Get a couple of well-paying jobs and you can repay the whole thing within a day or two anyway, meaning you have to pay hardly any interest at all.

oh, that's great. But i prefer to spend my money on expanding my crew. :-)

[Fox]

Originally posted by hausings:

Originally posted by Rhymane:

Get a couple of well-paying jobs and you can repay the whole thing within a day or two anyway, meaning you have to pay hardly any interest at all.

oh, that's great. But i prefer to spend my money on expanding my crew. :-)

With respect bro, if you pay off the loan first then in the long run you'll be able to spend more money on your crew than otherwise.

If you don't pay off the loan then you'll be paying installments for longer and racking up interest, so as discussed in this topic already you'll end up paying more money total to the bank. Say you got a 400k loan and 400k from your next few jobs, you'd end up losing some of that job money on interest and have less to spend on crew.

However if you pay off the loan as quickly as possible, you may lose more initially, but because you have not racked up any interest the bank won't get a cent more than the amount you owe them, and all that extra interest money which you would have lost before can become your own to do with as you please. So after the initial outlay, you actually end up getting more money back in the longrun, and have more in the bank which you can spend as you will.

So if you want to spend more money expanding your crew, then paying off a loan as quickly as possible is the better option.