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legal eagle, Attorney

Category: German Law

Satisfied Customers: 16845

Experience: 20 years of experience in all kinds of law, especially employment law and family law.

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Should the interest on a private 5-year loan, payable in

Customer Question

Should the interest on a private 5-year loan, payable in full in one lump sum payment on the end of the fifth year, be calculated as complex interest with annual capitalisation of the interest, or as a simple interest where the agreed rate is multiplied by the number of years based on the principal?

The wording says that "the loan is provided at 5% annual interest". To put the question more specifically - is there anything in the law which explicitly prohibits compound interest on loans spanning more than one year?

if it is a private loan there is nothing in the law, only if you had the loan as a consumer. If the loan was paid back in monthly instalments it is calculated monthly if it had to be paid back as a lump sum it is calculated as a lump sum

Dear Legal Eagle, I am quite fluent in math and calculus. My question is, in your opinion: when a loan is provided "at 5% annual interest" and has a maturity on the fifth year, payable as one lump sum, should this lump sum be calculated as B*(1+5*R), or as B*(1+R)^5. Where B is the principal, R is the interest rate.