credit intrest on intrest

[Per Carlsson]

I have a loan in a bank that functions as a combination of checking
account, house-loan (example 1.000.000 house loan) and credit, much
like a credit card credit, but i pay interest on the used money from
the day i spend them. It has a credit limit and no mortage.
I try to compare this loan to a regular loan, with mortage-payments
and interest.
Since I use the loan as an account I will get several small increases
in debt, in addition to the loan of a million, during the month, all
with different interest dates which will together be the basis for the
calculation of my interest payment for the month payable the last day
of the month. My salary (for example 40.000) will go into the account
on the 20.th of each month, which will reduce the debt (and off course
interest). The interest (3,8%) is calculated day by day (a purchase I
have done the first of the month will have 31 days of interest, while
a purchase i do the 31st will only have one day of interest. An
example of purchases on different days in the month below. How do I
compose a formula for calculating interest and interest on interest
day by day on this loan, and get a monthly cost for it, så i can
compare?
1 1000,0
2 1000,0
6 1000,0
7 30,2
10 503,7
13 526,8
15 20,6
16 538,2
19 33,0
20 11515,1 +salary 40000
21 249,6
23 6383,0
24 883,6
26 594,5
27 32,1
28 369,0
29 5054,7
30 1090,0
31 20,4

 

[joeu2004]

I have a loan in a bank that functions as a combination
of checking account, house-loan (example 1.000.000 house
loan) and credit, much like a credit card credit, but i
pay interest on the used money from the day i spend them. [....]
How do I compose a formula for calculating interest and
interest on interest day by day on this loan, and get a
monthly cost for it

That sounds like a "line of credit", although it might be called something
else in your country.

You will not be able to compute a "fixed monthly payment", as you might with
a regular mortgage. So it is unclear to me how you would make a comparison.

(You might simulate a scheduled of variable withdrawals and deposits and
compute total interest charged over some period of time.)

In any case, the devil is the details. There are many different ways that
banks can account for and charge accrued interest.

I worked with one individual some time ago. Eventually, he got a schedule
of daily balances and accrued interest covering 2-3 months based on actual
activity in his account. The bank showed the amount of daily and accrued
interest and when the interest was paid to the account. That allowed me to
intuit how the bank computed interest.

Download the file "line of credit.xls" from
https://www.box.com/s/415a2d89ccaafb7ebbbb.

Note that this example is based on that person's bank loan. Your bank loan
might work differently in some detail.

But hopefully the example will give you some idea of the kind of
calculations to make and the questions you need to ask your bank.

Note: In the US and perhaps other countries, lenders are required to
provide a "disclosure statement" that should explain how interest accrues
and is charged to the account. However, verbal explanations can be
confusing. I would still ask for a schedule of daily activity from a bank
to demonstrates the detailed mechanics of interest computation.

For that example, simple interest accrues through the 3rd of each month. It
is added to the account balance on the 4th of each month. Thus, it
compounds monthly.

Daily simple interest is calculated as follows: the previous balance times
the previous annual rate times the number of days since the previous balance
divided by 365.


----- original message -----

I have a loan in a bank that functions as a combination of checking
account, house-loan (example 1.000.000 house loan) and credit, much
like a credit card credit, but i pay interest on the used money from
the day i spend them. It has a credit limit and no mortage.
I try to compare this loan to a regular loan, with mortage-payments
and interest.
Since I use the loan as an account I will get several small increases
in debt, in addition to the loan of a million, during the month, all
with different interest dates which will together be the basis for the
calculation of my interest payment for the month payable the last day
of the month. My salary (for example 40.000) will go into the account
on the 20.th of each month, which will reduce the debt (and off course
interest). The interest (3,8%) is calculated day by day (a purchase I
have done the first of the month will have 31 days of interest, while
a purchase i do the 31st will only have one day of interest. An
example of purchases on different days in the month below. How do I
compose a formula for calculating interest and interest on interest
day by day on this loan, and get a monthly cost for it, så i can
compare?
1 1000,0
2 1000,0
6 1000,0
7 30,2
10 503,7
13 526,8
15 20,6
16 538,2
19 33,0
20 11515,1 +salary 40000
21 249,6
23 6383,0
24 883,6
26 594,5
27 32,1
28 369,0
29 5054,7
30 1090,0
31 20,4