Question

A loan of $4000 is taken out in the beginning of January. It is to be paid back within 1-year period with partial payments (at the end of month) of $490 in March, $1500 in Jul, and $1000 in Sep. If the rate of interest is 9%, what is the final balance due at the end of Dec. using the Declining Balance Method (US rule)?

Answer 1

Interest on 1st payment = 4000 * 0.09 * 3/12 = 90

principal to be repayed after 1st payment = 4000 + 90 - 490

= 3600

interest on 2nd payment = 3600 * 0.09 * 4/12 = 108

principal to be repayed after 2nd payment = 3600 + 108 - 1500

= 2208

interest on 3rd payment = 2208 * 0.09 * 2/12 = 33.12

principal to be repayed after 2nd payment = 2208 + 33.12 - 1000

= 1241.12

interest on final payment = 1241.12 * 0.09 * 3/12 = 27.93

final payment = 1241.12 + 27.93

= 1269.05