if you borrow 45000 from a bank at 9% annually compounded interest to be repaid in three equal annual instalments. what is the interest paid in the third year?

# 1 Answer

The total interest you PAY depends on the TYPE of loan you acquired.

However the interest __on any loan__ in NEVER compounded. Unless you got money from a "Loan Shark" instead of a bank

Compound interests is __paid__ on money one invest or deposits. In other words one gets interest on the interest added monthly, as well.

As a simple explanation, generally a loan one acquires is figured in one of several ways.

"Add On," is the total interest due is ADDED to the amount loaned and then re-paid in equal monthly payments.

"Discount" is the total interest due for the term of the loan (3 Years) is divided equally over each month.

"Simple" the total interest due on the MONTHLY balance is paid each month, so the amount of interest declines every month.

In the first example the interest is the highest TOTAL amount at the SAME RATE of interest

The third example is the LOWEST TOTAL amount, at the SAME RATE of interest

Sounds to me like you have an "Discount" loan payable in three annual installments. Each one at 9% APR of the annual balance due.

You have the use of $45,000 the first year, $30,000 the second and $15,000 the final year. In any event if you are in the US that is high rate.

12 years ago. Rating: 0 | |