Overdraft facility to calculate interest rate

Calculating the current account credit interest rate can be useful in many cases. 
Two of the possible uses are:

Verification of account settlement

On the one hand, this method can be used to check the interest settlement in the bank’s account statement.

Of course, most of the banks will not make mistakes in such calculations, which are trivial for themselves, such as the current account overdraft rate .

Nevertheless, it is a good feeling not to trust the bank blindly, but to be able to verify the calculation in doubt itself and without much effort.

Comparison of the types of financing

However, by calculating the current account interest rate, you can also compare the possible costs of using the overdraft facility with other financing options.

By identifying a single interest rate, you can easily compare different forms of financing.

In particular, the comparison with an instant loan , installment loan or rescheduling loan may be worthwhile.

Current account credit calculate interest rate

Current account credit calculate interest rate

If you want to calculate the current account credit interest rate , you need the amount used, the period of the claim and the amount of interest paid for it .

The starting point for calculating the current account interest rate is the classic interest rate formula

Z = K * (p / 100) * (d / 360) .

Stand in this

Z for the interest payable,

K for the amount used,

p for the current account credit interest rate in% and

d for the period of use in days.

But since we do not want to calculate the interest ( Z ) but the current account credit interest rate ( p ), we must first change the above formula to p.

This results in the formula to calculate the current account interest rate:

p = (Z / (K * (d / 360))) * 100 = (alternatively: formula notation).

In this formula, then only the values to use and you can calculate the current account interest rate.

interest method

But beware! There are different interest rate methods that have to be applied in different cases.

In order to calculate the current account interest rate correctly, you need the German or commercial interest method.

After that, for reasons of simplification, 360 days are used each year and 30 days each month.

Example to calculate the current account credit interest rate:

You have taken an amount of 10,000 euros over a period of 10 days and paid 27.78 euros interest .

In order to be able to calculate the concrete current account interest rate in this example, you must use the values in the formula determined above:

p = (Z / (K * (d / 360)) * 100 = (27.78 / (10,000.00 * (10/360)) * 100 = 10.0% pa

And as you can see, you will then receive the current account interest rate of 10% pa as a result of the calculation

conditions

If you want to calculate the current account interest rate according to the above scheme, the amount borrowed and the interest rate must remain constant over the period of the claim.

Therefore, if you have a fluctuating claim over time, you may only charge the overdraft interest rate for a period of constant use. Otherwise, the result would be corrupted.

You would also receive the wrong results if the bank had adjusted the relevant interest rate for you during the reporting period. In this case, you would only receive a compound interest rate using the formula above, which represents a compound of real interest rates.

Current account credit only short term thought

Please always keep in mind that the overdraft facility is only intended to bridge short-term liquidity bottlenecks!

If you expect the overdraft to take longer, you should definitely switch to a installment loan!

Because then you often save significantly compared to the current account credit interest and have a foreseeable repayment of the amount used. This will prevent you from sitting on debt forever.