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I think this is a simple question, but the simple ones always get me. I planned to loan an acquaintance $10,000 for a small business loan to be repaid in 5 years by a lump sum payment of $17,000. He would go to a bank if he could. This isn't usury in my state.
Today he said "I'd rather repay the loan in annual payments at the same interest rate." I'm sure I can figure out the payment schedule for him, but my question is: What is "the same interest rate"? I want to think that the loan we agreed to originally was simple interest at 14%.
My concern is that when we discuss this later, he'll say that I should calculate the interest rate of our original agreement based on annual compounding because now we're talking about annual payments. That would mean a lower annual rate (11.1%) would be the "same rate." I think the APR of our original agreement was 14% but the Effective Annual Rate was 11.1%. Am I using these terms correctly? What would a bank mean by "same interest rate" in this situation or is that phrase not used?
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