Simple Interest And Methods of Payment

* Whenever money is borrowed, the borrower (an individual, organisation or community) pays the lender (a bank or similar financial institution) for the use of that money. This payment is known as interest. * Interest is paid on top of the repayment of the amount borrowed (called the principal). * It is charged as a ‘percentage rate’—a percentage of the amount borrowed, calculated at regular time periods.

The amount of interest paid depends on: the initial amount of money borrowed or invested, known as the principal, P the annual percentage rate of interest that is charged or paid, r the time period, in years, for which the money is borrowed or invested, T. Simple interest is the product of these three variables: I =PrT The annual percentage rate, r, is often called the rate ‘per annum’,

* There are a number of ways that you can pay for goods if you do not have actual cash with you.

* Debit cards allow money for your purchase to be transferred electronically from your bank account to the store’s account. This is done through the Electronic Funds Transfer at Point of Sale (EFTPOS) system. * Credit card companies such as VISA and MasterCard provide debit cards that, in addition to being used for EFTPOS, can also be used overseas and online.

* Credit cards look like debit cards and are used in a similar way, but there is one important difference. When you use a credit card, the card provider (usually a bank) pays the store for you and sends you a bill at the end of the month. * If you do not pay the bill in full, a high rate of interest is charged.

* The store holds the item for you while you make payments. * You receive the item after it has been completely paid for. * No interest has to be paid for this form of payment.

* This is usually used to describe the payment method for repaying university or college fees that have been accumulated by using HELP – the Higher Education Loan Program. * Payment begins once the borrower (the student) begins earning above a certain amount set by the government. Repayments are calculated as a percentage of the borrower’s income.

* Large purchases, such as furniture, computers or cars, can be bought in this way. You take possession of the goods then pay them off. * Many stores offer an ‘interest-free period’ where you pay a small account-keeping fee and a monthly repayment. * However, if you have not fully paid for the item by the end of this period, a very high interest rate is charged (often between 20% and 30%).

* In addition to charging for EFTPOS transactions, banks may also charge monthly account-keeping fees and/or fees for withdrawing cash from ATMs (Automatic Teller Machines), particularly if the ATM belongs to another bank, or for paying bills online.

* The daily balances are added up and divided by the number of days in the statement period to get an ‘Average Daily Balance’, or ADB. * A daily interest rate is calculated by dividing the annual rate by 365. * The ADB is multiplied by the daily interest rate, then by the number of days in the statement period, to give the amount of interest for the period. * This interest will then be charged on the next statement if the amount is not paid in full by the due date.