Stories

New York City Limo

Mr. Delgado (pseudonym instead of real name) recently took out a loan for a Lincoln Town Car which he was using for his limousine service company in Manhattan, New York.  The bank required him to pay $209 every Friday (it was a 3-year loan), and after he made payments for two months, he began feeling uneasy about the situation because the payments seemed high.  A family member helped Mr. Delgado to review the paperwork for the loan.  After they noticed that the paperwork did not state the interest rate, Mr. Delgado called his contact at the bank.  Strangely, the contact was not able to tell him the interest rate, and explained it was not possible to know the interest rate because the numbers “change every week on Friday”.  Next, Mr. Delgado came across Loanreader calculators which helped him assess his situation.  Using Loanreader’s “Assess Existing Loan” calculator, the following information was entered:  

*  Loan amount:  $22,000
*  Interest rate:     ? –  unknown
*  Initial term of loan:    3 years
*  Compound and Payment Frequency both set to “Weekly”
*  Payment (includes principal and interest):   $209.00

It was necessary to enter in various interest rates until the payment came out as $209.   The amazing thing is what the interest rate came out to be!    It was 27.9% … which is certainly hard to believe.   Next, the situation for Mr. Delgado rapidly improved because he raised (borrowed) $20,000 from his social/family network and paid off the loan with the bank, and thereby saved thousands of dollars in interest.  If he had stayed in that particular loan for the full 3 years, he would have paid approximately $10,500 in interest.
Loanreader

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