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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

where we get a research paper on Nano chemistry....?
Maira Reply
what are the products of Nano chemistry?
Maira Reply
There are lots of products of nano chemistry... Like nano coatings.....carbon fiber.. And lots of others..
Even nanotechnology is pretty much all about chemistry... Its the chemistry on quantum or atomic level
no nanotechnology is also a part of physics and maths it requires angle formulas and some pressure regarding concepts
Preparation and Applications of Nanomaterial for Drug Delivery
Hafiz Reply
Application of nanotechnology in medicine
what is variations in raman spectra for nanomaterials
Jyoti Reply
I only see partial conversation and what's the question here!
Crow Reply
what about nanotechnology for water purification
RAW Reply
please someone correct me if I'm wrong but I think one can use nanoparticles, specially silver nanoparticles for water treatment.
yes that's correct
I think
Nasa has use it in the 60's, copper as water purification in the moon travel.
nanocopper obvius
what is the stm
Brian Reply
is there industrial application of fullrenes. What is the method to prepare fullrene on large scale.?
industrial application...? mmm I think on the medical side as drug carrier, but you should go deeper on your research, I may be wrong
How we are making nano material?
what is a peer
What is meant by 'nano scale'?
What is STMs full form?
scanning tunneling microscope
how nano science is used for hydrophobicity
Do u think that Graphene and Fullrene fiber can be used to make Air Plane body structure the lightest and strongest. Rafiq
what is differents between GO and RGO?
what is simplest way to understand the applications of nano robots used to detect the cancer affected cell of human body.? How this robot is carried to required site of body cell.? what will be the carrier material and how can be detected that correct delivery of drug is done Rafiq
analytical skills graphene is prepared to kill any type viruses .
Any one who tell me about Preparation and application of Nanomaterial for drug Delivery
what is Nano technology ?
Bob Reply
write examples of Nano molecule?
The nanotechnology is as new science, to scale nanometric
nanotechnology is the study, desing, synthesis, manipulation and application of materials and functional systems through control of matter at nanoscale
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.
how did you get the value of 2000N.What calculations are needed to arrive at it
Smarajit Reply
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Source:  OpenStax, Siyavula textbooks: grade 12 maths. OpenStax CNX. Aug 03, 2011 Download for free at http://cnx.org/content/col11242/1.2
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