The 16% rate by the unions is the same as about 25% rate from some of the banks _ Benjamin Dake
This is because of the reducing balance rate by some commercial banks.
Reducing Balance Loans
Reducing balance loans are calculated on the balance owing and not the initial amount borrowed. As payments are made, the balance owing is reduced and hence the interest charged is reduced.
If you take a loan of 10,000ghc from the unions at 16% for 3years, the calculation is done this way;
16% of 10k is 1600.
1600x 3years is 4,800ghc (this is your interest which will be added to the principal.
So you have 10,000ghc + 4800 = ( 14,800ghc)
This is your total amount payable with interest.
To know your monthly payment, just divide this amount by the 36months (3years)
You will be paying about 412ghc monthly for 3years.
10,000ghc at 25%
Interest is calculated this way.
Say year 1, 25% interest will be 2,500.
Let’s say you were paying 400ghc monthly. At the end of year one, you would have paid about 5,000ghc. Outstanding loan principal will be 5,000.
For 2nd year, the interest rate will no longer be calculated on 10k but rather on the outstanding 5k left.
Eg. Interest for year 2 is 1250ghc and interest for year 3 is about 800.
In all total interest will be 4,550ghc (2,500+1250+800)
Then total amount payable with interest will be 14,550ghc.
You can divide this by 33 or 36months.
You may be paying almost the same amount monthly as the unions.
There are some unions in certain Organizations that have much lower rates.
source; Inform Teachers Network