<< Chapter < Page Chapter >> Page >

Now, let's see the same thing again, but with R2 000 being repaid each year. We expect the numbers to change. However, how much will they change by? As before, we owe R1 425 in interest in interest. After one month. However, we are paying R2 000 this time. That leaves R575 that goes towards paying off the capital outstanding, reducing it to R189 425. By the end of the second month, the interest owed is R1 420,69 (That's R189 425 × i 12 ). Our R2 000 pays for that interest, and reduces the capital amount owed by R2 000 - R1 420,69 = R579,31. This reduces the amount outstanding to R188 845,69.

Doing the same calculations as before yields a new loan schedule shown in [link] .

A loan schedule with repayments of R2 000 per month.
Time Repayment Interest Component Capital Component Capital Outstanding
0 R 190 000 00
1 R 2 000 00 R 1 425 00 R 575 00 R 189 425 00
2 R 2 000 00 R 1 420 69 R 579 31 R 188 845 69
3 R 2 000 00 R 1 416 34 R 583 66 R 188 262 03
4 R 2 000 00 R 1 411 97 R 588 03 R 187 674 00
5 R 2 000 00 R 1 407 55 R 592 45 R 187 081 55
6 R 2 000 00 R 1 403 11 R 596 89 R 186 484 66
7 R 2 000 00 R 1 398 63 R 601 37 R 185 883 30
8 R 2 000 00 R 1 394 12 R 605 88 R 185 277 42
9 R 2 000 00 R 1 389 58 R 610 42 R 184 667 00
10 R 2 000 00 R 1 385 00 R 615 00 R 184 052 00
11 R 2 000 00 R 1 380 39 R 619 61 R 183 432 39
12 R 2 000 00 R 1 375 74 R 624 26 R 182 808 14

The important numbers to notice is the “Capital Component" column. Note that when we are paying off R2 000 a month as compared to R1 709,48 a month, this column more than double. In the beginning of paying off a loan, very little of our money is used to pay off the capital outstanding. Therefore, even a small increase in repayment amounts can significantly increase the speed at which we are paying off the capital.

What's more, look at the amount we are still owing after one year (i.e. at time 12). When we were paying R1 709,48 a month, we still owe R186 441,84. However, if we increase the repayments to R2 000 a month, the amount outstanding decreases by over R3 000 to R182 808,14. This means we would have paid off over R7 000 in our first year instead of less than R4 000. This increased speed at which we are paying off the capital portion of the loan is what allows us to pay off the whole loan in around 14 years instead of the original 20. Note however, the effect of paying R2 000 instead of R1 709,48 is more significant in the beginning of the loan than near the end of the loan.

It is noted that in this instance, by paying slightly more than what the bank would ask you to pay, you can pay off a loan a lot quicker. The natural question to ask here is: why are banks asking us to pay the lower amount for much longer then? Are they trying to cheat us out of our money?

There is no simple answer to this. Banks provide a service to us in return for a fee, so they are out to make a profit. However, they need to be careful not to cheat their customers for fear that they'll simply use another bank. The central issue here is one of scale. For us, the changes involved appear big. We are paying off our loan 6 years earlier by paying just a bit more a month. To a bank, however, it doesn't matter much either way. In all likelihood, it doesn't affect their profit margins one bit!

Questions & Answers

Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
what school?
biomolecules are e building blocks of every organics and inorganic materials.
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
sciencedirect big data base
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
characteristics of micro business
for teaching engĺish at school how nano technology help us
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
what is the actual application of fullerenes nowadays?
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
is Bucky paper clear?
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Do you know which machine is used to that process?
how to fabricate graphene ink ?
for screen printed electrodes ?
What is lattice structure?
s. Reply
of graphene you mean?
or in general
in general
Graphene has a hexagonal structure
On having this app for quite a bit time, Haven't realised there's a chat room in it.
what is biological synthesis of nanoparticles
Sanket Reply
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
Privacy Information Security Software Version 1.1a
Berger describes sociologists as concerned with
Mueller Reply
Got questions? Join the online conversation and get instant answers!
Jobilize.com Reply

Get the best Algebra and trigonometry course in your pocket!

Source:  OpenStax, Siyavula textbooks: grade 12 maths. OpenStax CNX. Aug 03, 2011 Download for free at http://cnx.org/content/col11242/1.2
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Siyavula textbooks: grade 12 maths' conversation and receive update notifications?