Chapter 8 Loans
270
Exact Interest Method
The exact interest method is similar to the ordinary interest method. The
exact interest method calculates the loan interest by using the exact number
of days divided by 365 to get an exact fraction of the year. This method is more
complicated because you have to
account for the varying length of actual
months. There are four months with 30
days. Seven months have 31 days. And,
of course, February has 28 days. These
days total 365.
The formulas for exact interest are
similar to those for ordinary interest.
However, the more exact number of
365 days in a year is used instead of the
general 360 days:
term =
number of days of the loan
365
I = Prt
Example 8-1E
See It
Nita borrowed $2,450 from her credit union. The annual percentage rate is
7.6%. She repaid the loan 65 days after she borrowed the money. Calculate the
amount of interest that Nita paid for the loan.
Strategy
Use the formulas:
term =
number of days of the loan
365
I = Prt
Solution
Step 1: Convert the annual interest rate to a decimal by moving the decimal two
places to the left.
7.6% → 0.076
Loans are a commitment that should be taken
seriously. Once you sign for a loan, you are responsible
for making payments on time. Before you apply for
a loan, do your homework. Interest rates change
regularly, so shop for the best interest rate and
repayment plans. Make sure that a loan payment fi ts
into your budget as you will be making payments for
an extended amount of time. Using an online calculator
can help you estimate your payments while you are doing your research.
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