Loan question (Maths)

[BKKTRAVELER]

Ok, so I apologize if that's not the right forum section.

 

I have a friend that needs to get a 100,000 baht loan. He was offered to borrow with the condition that he maintains an 8% compensating balance during the loan period.

 

Since he needs to spend the full 100,000, he has to borrow total 108,695.65 baht. He is lost as to why it is not 108k.

 

Anyway, I understand the concept as to why he has to borrow slightly over 108k but I can't find the formula or equation to explain to him and I am puzzled. Any mathematics and finances genius who could help me out? ????

 

Sorry, I know it is a weird question...

[Crossy]

Is there some insurance built in??

[userabcd]

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[Mac Mickmanus]

8 % of 108 000 is the total figure you quoted, 108 695

[WhiteBuffaloATM]

foreigners cant get bank or finance loans here. whats it for ?

survival,  sounds like desperation ?

if unsecured loan,  terms seem fair by local,stds.

is this loan sharking secured against property or vehicle, etc.…. if so dont do it !

[BKKTRAVELER]

ok, this is for a Thai friend who is getting a loan from a private financial institution.

 

He needs 100,000 baht (full amount). He needs to keep 8% as a compensating balance during the loan period as a condition from financial place.

 

If he borrows 108k, 8% of that is 8,640 baht so he will have 99,360 baht left, but he wants the full 100,000 baht to use.

 

So that's why the financial place offered 108,695.65 because 8% of that amount = 8,695.65 baht so he still has 100,000 baht he can use.

 

I just can't find the equation they used to find the 108,695.65 baht in the first place. That's what I want to show him so he'll understand better.

 

I'm sorry, I know it is a silly question 555 thanks for helping out!

[Etaoin Shrdlu]

100,000/(1.0-0.08) = 108,695

 

 

 

[BKKTRAVELER]

1 minute ago, Etaoin Shrdlu said:

100,000/(1.0-0.08) - 108,695

 

 

 

You're my HERO!!! Thank you so much !

[lkn]

Explained in words: he can only spend 92% and he wants to spend 100,000 baht.

 

So 100,000 baht is 92%, meaning 1% is 100,000/92. From 1% we can get 100% by multiplying by 100, making it 100,000/92*100.

 

Dividing by 92 and then multiplying by 100 is the same as just dividing by 0.92, so it can be rewritten as 100,000/0.92.

[RichardColeman]

9 hours ago, BKKTRAVELER said:

If he borrows 108k, 8% of that is 8,640 baht so he will have 99,360 baht left, but he wants the full 100,000 baht to use.

I suggest your 'friend' has real money issues if they worry about - and cannot find - the missing 640 baht to make up the 100K !

[lkn]

11 hours ago, BKKTRAVELER said:

He was offered to borrow with the condition that he maintains an 8% compensating balance during the loan period.

Initially this made no sense to me, but I assume that the compensating balance will be with the lender, yet your friend will have to pay interest on that as well.

 

So your friend only borrows 100k baht, but will pay interest on 108.7k.

 

Maybe this is to get around some government mandated max interest rate?

[Neeranam]

18 hours ago, WhiteBuffaloATM said:

foreigners cant get bank or finance loans here.

yes they can

[Neeranam]

18 hours ago, Etaoin Shrdlu said:

100,000/(1.0-0.08) = 108,695

I studied Pure Maths at university and couldn't work that out ???? 

[Etaoin Shrdlu]

14 minutes ago, Neeranam said:

I studied Pure Maths at university and couldn't work that out ???? 

This is something that is learned early on when working in the insurance industry. It is frequently necessary to calculate a gross premium (one that includes the broker's commission) from a net premium with the commission being a specified percentage of the gross premium. We called it "grossing up for commission" but it probably has a more elegant name in the world of math.

[BKKTRAVELER]

Thanks guys for helping out. I know it was a weird request.

 

He needed 100k exactly to show on one of his company accounts for some reason. Must be some accounting requirement but I don't know what for. I guess it was a trick to be eligible for tax reduction or something, I have no idea honestly.

 

He is not desperate for money, like most he took a big hit during Covid but he is fine still.

 

He says thanks as well for helping and was shocked I could get the answer here haha.

 

You guys rock!

 

[BKKTRAVELER]

3 minutes ago, Etaoin Shrdlu said:

This is something that is learned early on when working in the insurance industry. It is frequently necessary to calculate a gross premium (one that includes the broker's commission) from a net premium with the commission being a specified percentage of the gross premium. We called it "grossing up for commission" but it probably has a more elegant name in the world of math.

Well, thank god for you learning it! ????

[lkn]

4 hours ago, Etaoin Shrdlu said:

This is something that is learned early on when working in the insurance industry

From where I am from, this is in the 7th grade curriculum, together with fractions, decimal numbers, and various interest-bearing loan calculations.

 

Of course many people, who don’t use it regularly, will forget.