A non-dependent customer obtained financing worth 2,000 JOD from Tamweelcom Company from one of the non-approved suppliers, so that the financing will be repaid over 24 months with a decreasing/annual interest rate of 26.545%, which is equivalent to a fixed/annual interest rate of 15%.
1. What is the total interest accrued on the financing?
Total interest value on financing = 600 JOD, plus 3% sales tax
The value of import stamps on the contract = 6 JOD
The value of the commission for granting one-time credit = 30 JOD, plus 3% sales tax
Other services: “Sanad” insurance service upon customer request, subject to the company’s terms and conditions = 1.5 JOD per month
2.What is the value of the monthly installment that must be paid (principal, interest, and sales tax on the interest)
The value of the monthly installment for the first payment: 102,500 JOD
The value of the monthly installment for the remaining payments: 110,500 JOD, including the principal, interest, and sales tax on the interest.
3. How is the effective interest rate (EIR) calculated for financing?
The effective interest rate is calculated according to the following equation (EIR) = 1-12(IRR+1)
The internal rate of return (IRR) is calculated using Microsoft Excel using the IRR equation according to the following:
In the Value field: we enter all cash flows (negative and positive)
In the Guess field: (represents the expected return): enter “zero”.
The result is =0.02812
Which expresses the monthly effective rate.
The effective interest rate (EIR) is calculated by substituting the internal rate of return (IRR) into the following equation:
Effective interest rate = 1- 12(IRR+1)
Effective interest rate = 36.273%
