I think I should write something practical. After getting the consent of my uncle who is the president of the Agricultural Bank of China, I will tell you these facts. Remember them well, they will be useful sooner or later! (I used to post diaries very frequently, but now I’ve started to write them myself. Occasionally I’ll post a few eulogies when I’m in a bad mood, like today, haha~)
With the widespread popularity of financial awareness, everyone has I interact with banks more and more frequently, and my understanding of banking knowledge and business seems to have made great progress.
But there are always some things that seem "certain" but turn out to be "not sure" at the bank. In banks, there are still many things that are "unexpected" for non-professionals.
Repaying the loan early will result in paying more interest
In 2006, Ms. Jiang borrowed a 1-year personal consumption loan of 500,000 yuan from the bank using her real estate mortgage, with an interest rate of 7.254%. (a 30% increase from the one-year benchmark interest rate of 5.58%), and the loan matured on March 29, 2007. In order to save interest expenses, she repaid the loan of 500,000 yuan in advance on March 28 this year.
After repaying the loan, Ms. Jiang went home and did a careful calculation and found something wrong. It seemed that the bank had overcharged the interest. Even if the repayment is due, the interest will only be 36,270 yuan. But repaying one day in advance will occupy less bank funds for one day, but you still have to pay more interest? Later, Ms. Jiang called the bank and found out that she had repaid the loan in advance and suffered a loss
It turns out that the bank has regulations: for a one-year loan, the loan repayment method is "one-time repayment of the principal and interest of the loan": When a loan is repaid when it is due, the interest is calculated based on "loan principal × annual interest rate"; for early loan repayment, interest is calculated based on "loan principal × loan daily interest rate × actual number of days of the loan". The bank’s formula for calculating daily interest rates is: annual interest rate ÷ 360 days.
According to the bank's regulations, if Ms. Jiang repays the loan when it expires on March 29, the bank will calculate interest based on the due repayment. The calculation formula is as follows:
Loan Principal 500,000 yuan × annual interest rate 7.254% × 1 year = 36,270 yuan.
As for Ms. Jiang’s repayment on April 28, the bank calculated the interest based on the actual loan period of 364 days. The calculation formula is as follows:
Loan principal 500,000 yuan × (annual interest rate 7.254% ÷360) × actual number of loan days 364 × 1 year = 36,582 yuan.
Among them, daily interest rate = annual interest rate 7.254%÷360
After such calculation, Ms. Jiang will obviously have to pay an additional interest of 312 yuan (36582 yuan-36270 yuan) for early repayment. What a big loss.
Miss Jiang’s experience of losing money teaches us a lesson: for a one-year loan, repaying the loan early does not necessarily save interest expenses. Whether you can save interest payments by paying off your loan early depends on how many days in advance you pay it off. Because the bank's annual interest rate is calculated based on 360 days, and there are 365 days in a year, there is a difference of 5 days; the actual number of days for borrowing is 360 days, which is the same balance of interest payments for early repayment and due repayment. point. Therefore, if you repay the loan in advance, so that the actual number of days on the loan is reduced by 360 days, you will be able to save interest expenses; on the contrary, if you repay the loan in advance, so that the actual number of days on the loan is greater than 360 days, you will unjustly pay more. interest.
Therefore, the seemingly simple matter of loan repayment actually hides a lot of knowledge, which should not be underestimated or taken for granted. Understanding the "true meaning" of loan repayment will save you a lot of money and minimize your bank borrowing costs.