Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why?
Suppose you are considering taking consumer loan from bank for one year. Usually, for short-term loans, the bank offers 8 percent interest that compounds annually. Your credit application has been viewed by a few banks and two of them replied; Bank ALFA offers you a loan at 8 percent annual rate-interest payment by the end of year, and Bank BETA offers a loan with the same annual interest rate, but interest payment is 2 percent by the end of each quarter. Which loan do you prefer? Why?
When loan is taken from the bank, interest is charged on it. Interest can be charged by bank annually, monthly, semi-annually or quarterly.
When the duration of loan is 1 year or less than 1 year, it is known as short-term loan. When the duration is more than 1 year, it is long- term loan.
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