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Lesson 3 - Personal Loan
Lesson 3 - Personal Loan
Terms of a loan
◦ the details of the loan agreed between the two
entities, e.g. principal amount, interest rate,
repayment, loan period, etc.
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The borrower shall repay the lender the principal (P0) and
the interest to pay off the debt.
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Many different types of loan available
Secured Loan
◦ Collateral is required
◦ e.g. car loan, mortgage, etc.
Unsecured Loan
◦ Collateral is not required
◦ e.g. personal loan, student loan, etc.
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Today, we are going to discuss:
Personal Loan
(Regular Repayment vs. Irregular Repayment)
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Let’s look for some personal loans offered by some
banks in Hong Kong.
HSBC
https://www.hsbc.com.hk/personal/loans.html
Citibank
https://www.citibank.com.hk/english/loans/loans.htm?lid=HKENCBGPLMITLOverview
BOC(HK)
http://www.bochk.com/en/loan/personal.html
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Monthly Flat Rate
◦ The interest rate of the loan based on simple interest
(I = P0 × r × n)
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(b)
The online calculator showed that the APR was 3.82%,
but it did not have the repayment schedule (or,
sometimes called the amortization schedule).
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To find the APR,
we need to use the
Solver (which is
similar to finding
an interest rate).
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(2) Input parameters in Solver
Set Target Cell: $B$21 (←We want the ending balance to
be $0 because we need to clear the debt after 12 months)
Equal To Value of 0
By Changing Cells: $B$5 (← We want to calculate
interest rate per month, then to calculate the APR)
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(3) Click Solve and you will have the answer.
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Again, there are some other ways to write the formulas
in the spreadsheet.
Here is one
of the
↓
alternatives: ⼆
( + )
= 17
In fact, HSBC has a table to summarize the monthly repayment and APR
for different loan amount and loan period at different monthly flat rate.
https://retailbank.hsbc.com.hk/promo/personal-instalment-loan/en/home#rates
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Some other banks, for example, Bank of China (Hong
Kong), also have online repayment calculators for their
personal loans.
◦ https://www.bochk.com/en/home/calculators/personalloan.html
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In Example 1, we pay off the debt with a regular
monthly repayment.
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An example from OCBC Wing Hang Credit:
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Janice is considering a 3-year loan of $80,000 from a
bank. Interest is compounded monthly and the annual
interest rate is 6%. The bank allows her to choose one
of the following repayment schedules:
(i) Monthly repayment
(ii) Monthly repayment with a special offer of payment
holiday in June of each year
(iii) Quarterly repayment (i.e. pays at the end of March,
June, September and December of each year)
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(1) Set up the spreadsheet with the correct formulas and
find the answer by Solver.
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(2) Input the parameters in Solver
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(3) Click Solve and you will have the answer.
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Note: interest will still be accrued in June of every year even
though she can skip her repayment.
◦ Syntax: =MOD(number,divisor) 5÷ 2 = 2 ×
2 +
1
8 ÷ 3 = 3 × 2 + 2
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Janice either pays the monthly repayment amount OR
zero in each month. Therefore, we can use IF function
to select one possible “outcome”.
=IF(MOD(Month,12)=6,0,MonthlyRepaymentAmount)
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(1) Set up the spreadsheet with the correct formulas and
find the answer by Solver.
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(2) Input the parameters in Solver
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(3) Click Solve and you will have the answer.
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Total interest expense =
Total amount of repayment – Principal
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Ringo would like to borrow $350,000.
Interest is compounded monthly.
Annual interest rate is 5.25%.
Loan period is 10 years.
Monthly repayment with a special offer of payment
holidays in February and May of each year.
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OR Function in Excel
◦ The OR function is to check whether the arguments are true or
false. It returns “TRUE” if one or more than one of the
arguments is/are true; return “FALSE” if all of the arguments
are false.
◦ Syntax: =OR(argument1,argument2,…)
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The combination of OR, IF and MOD function can tell
Excel that Ringo needs to make a repayment in
January, March to April, and June to December of each
year; and no repayment in February and May.
=IF(OR(MOD(Month,12)=2,MOD(Month,12)=5),0,MonthlyRepaymentAmount)
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Jenny is planning to go to Europe and watch the UEFA
Champions League Final for her graduation trip. The
estimated total cost of the trip is $22,000.
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(1) Set up the
spreadsheet with the
correct formulas and
find the answer by
Solver.
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(2) Input the parameters in Solver
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(3) Click Solve and
you will have the
answer.
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Christine received a cold call from a finance company. The
representative offered her a loan of $21,000. She could pay it off
with a monthly payment of $1,500 for 20 months and there is
absolutely no handling fees or other charges. Christine doubts
that it might be a fraud.
Assuming interest is compounded monthly, find the effective
interest rate per annum* of this loan for her.
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(1) Set up the
spreadsheet with
the correct
formulas and find
the answer by
Solver.
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(2) Input the parameters in Solver
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(3) Click Solve
and you will have
the answer.
Effective Interest
Rate = 54.06%
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