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Interest rate calculation (monthly versus yearly)

I am trying to convince my CEO that it would be better to charge our customers who have an outstanding balance a 3% compounding interest rate instead of the 18.5% annual rate we are currently charging. Know that there are no minimum payments involved so it may take someone forever to pay this debt. What would the yearly interest amount (return for the business) be at 3% monthly versus 18.5% annually for a $10,000 debt???? Compounded. How in the world is it possible to calculate that? Thank you P

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10,000 X (1.03)^12 is the formula for calculating interest compounded on a monthly basis for 12 months. The effective rate is about 42% on an annualized basis.

So the 10,000 would become 14,257.6 at the end of the year if the amount is still outstanding.

Alternatively if you think that is too high you can charge an annualized rate of 36% but compounded on a monthly basis which is about 2.6% per month.

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