navva on Sun, 27 Feb 2011 09:21:00 +0100 (CET)

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Re: <nettime> How a Library Saved My Life. - what can be done in regard to an unsustainable system of student loans

On Feb 26, 2011, at 10:54 PM, Novica Nakov wrote:

> I hope you won't mind me setting a little test of financial
>literacy. You buy a new ?1,000 computer and borrow money to pay for
>it. You have a choice: either (a) pay 12 monthly instalments of ?100;
>or (b) borrow money at an APR of 20 per cent, meaning you pay back
>?1,200 at the end of the year. Which offer is better - or are they
>(c) identical? (The answer is at the end of this column.)
>  The answer is (b). The instalment payments hide a deceptively high
>interest rate. Because capital is being repaid almost immediately but
>total interest is still ?200, the true interest rate is much higher
>than 20 per cent. Reader Ian Nicol informs me that Excel uses the
>formula (RATE(1*12,-100,1000)*12) to calculate interest rate, in this
>case more than 35 per cent.

ok, so, in the first instance I pay ?1200 over twelve months, but
in your favored option, I pay the same amount to a bank or other
lender at the end of the year. The effective interest rate may be
significantly higher, but the benefit to me may be greater with option
a, unless I am really missing something. I don't have to gin up a big
lump sum and endanger my credit rating as well. There is a reason why
usurious rent-to-own schemes exist. help me out here. 

martha rosler

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