PRESS RELEASE FOR EDULOAN
ISSUED BY KEZI COMMUNICATIONS
FOR IMMEDIATE RELEASE
12 JULY 2010
In a previous editorial feature, we looked at the ins and outs of debt. What debt is (the fine line between good and evil), the advantages of incurring good debt and the measures that are in place to protect you from getting yourself into a financial pitfall. Two words that are synonymous with debt are interest rates, and as it goes with everything in life, nothing comes for free. There has to be a small price to pay – depending on how well you manage your debt – for the amount that you borrowed. As it is in the case of debt, interest rates need not be a terrifying or intimidating concept. It all boils down to being diligent with paying your debt and ensuring that you stay on top of interest rates.
What are Interest Rates?
As we all know by now, debt is the amount of money you have to pay back to the person or institution (such as banks, retail stores or micro lenders) from which you borrowed. This amount consists of two parts – the actual borrowed amount (also known as principal debt or capital amount) and interest. Interest is the compensation paid to the person or institutions who lend you the money. It is normally expressed as a percentage of the borrowed amount, e.g. 15% per year. Therefore, it is wise to repay your debt on a monthly basis, as this will significantly reduce the amount of interest you repay at the end of the day. This is relevant to most debt incurred, like credit card loans, clothing accounts, car finance etc.
Compound vs. Effective Interest Rates
Compound interest occurs when interest is added to the principal debt or capital amount, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal debt is called compounding. A bank account, for example, may have its interest compounded every year: in this case, an account with R1000 initial principal debt and 20% interest per year would have a balance of R1200 at the end of the first year, R1440 at the end of the second year, and so on. This is a common occurrence when buying a car.
The effective interest rate is the interest rate on your debt restated from the nominal interest rates as an interest rate with annual compound interest payable in arrears. It is used to compare the annual interest between loans with different compounding terms (daily, monthly, annually, or other). Thus, the quicker you repay your principal debt, the less your effective interest rates will be.
The more diligent you are in repaying your debt, the more controlled the interest on your debt will be. In the end, the sooner the pay off your debt, the less time there will be for the interest to accumulate. If you can repay a little bit extra on your debt every month, the interest is covered in most cases.
Eduloan is South Africa’s exclusive education fund enabler, bridging the gap between employers and South Africans wanting to study further. Through partnerships forged with government, corporates and South Africa’s tertiary education institutions, Eduloan facilitates the automatic deduction of study-loan repayments directly from the salary of its students or their sponsors, over to their institution of learning. By offering bespoke and affordable loan agreements to its students, Eduloan is focused on empowering South Africans through learning, in so doing building a globally competitive nation by creating access to further education.
Through the management and dispersion of study loans and the addition of a unique educational fund management programme, Eduloan assures the provision of funds for education are more efficiently and successfully managed. For more information, call Eduloan’s Client Services Department on 0860-55-55-44 or visit www.eduloan.co.za.
Editorial contact:
Jessica Wheeler
KEZI COMMUNICATIONS (PTY) LTD
Cell: 072 731 7691
Tel: (011) 616 1860
jess@kezi.co.za
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