Brendan Burgess
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Say that a borrower is charged 3% a year, instead of 1% a year for five years.
Their account would be as follows:
Total interest charged: €13,584.62 (Roughly 3% year for five years)
Had they been charged the correct rate of 1%, their account would have been:
Total interest which should have been charged: €4,435.53*
Now the borrower owes €76,841.86 which he would now owe had he been charged the correct level of interest and has cash of €5,682.18
*The interest which should have been charged is slightly different from this figure because of the overpayments, but the above explains the principle.
Their account would be as follows:
Total interest charged: €13,584.62 (Roughly 3% year for five years)
Had they been charged the correct rate of 1%, their account would have been:
Total interest which should have been charged: €4,435.53*
Now the borrower owes €76,841.86 which he would now owe had he been charged the correct level of interest and has cash of €5,682.18
*The interest which should have been charged is slightly different from this figure because of the overpayments, but the above explains the principle.