Page 93 - DBP5043

CALCULATE THE EFFECTIVE COST OF SHORT

TERM LOAN

The calculation of EC for a loan can be divided into two methods,
namely:

1) Simple Interest Method - interest is charged on the basis
amount borrowed , interest is paid when loan ends

Effective cost (EC) = × 100
( − )

2) Discounted Method - interest is charged on the basis amount
borrowed, interest is paid when loan begins

Effective cost (EC) = × 100
− −