Overview
This section explains how the system calculates payments, including interest-only and amortized loans. It also explains how system settings affect these calculations, with examples.
Key Types of Loans and Their Calculations
Interest-Only Loans
Description: In an interest-only loan, only the interest on the principal is paid. The principal itself is not reduced.
Formula:
Interest Payment = Principal × (Annual Interest Rate ÷ Periods in Year)
Example: A loan of $100,000 at 12% annual interest, paid monthly.
Monthly Interest Payment = 100,000 × (12% ÷ 12) = 1,000
Amortized Loans
Description: Each payment covers both interest and principal. Over time, the share of interest decreases while the share of principal increases.
Formula (similar to Excel PMT):
Monthly Payment = P × [ r(1 + r)^n ] ÷ [ (1 + r)^n – 1 ]
P = principal, r = monthly interest rate, n = number of payments
System Settings Influencing Calculations
Period Basis (360 vs 365 Days)
The system can calculate daily interest using a 360-day or 365-day year.
Example: $100,000 loan at 12% annual interest.
360-day basis: Per diem = (100,000 × 12%) ÷ 360 = 33.33 per day
365-day basis: Per diem = (100,000 × 12%) ÷ 365 = 32.88 per day
Irregular and Regular Periods
Irregular Periods: When the loan starts mid-cycle, the first payment covers an irregular number of days.
Example: Loan starts Nov 20, first payment Dec 1.
Per diem = 33.33, Days = 11 → Interest = 11 × 33.33 = 366.66
Regular Periods:
Regular Period: (30/360) Monthly payments assume 30 days.
Actual Days: Payments adjust based on real days in the month.
Actual Received Days: Payments adjust based on the exact date the payment is made.
Special Scenarios and Adjustments
Loan Amount vs Principal Balance
Loan Amount (Dutch): Interest is calculated on the full loan amount.
Principal Balance (Non-Dutch): Interest is calculated only on the remaining balance.
Mid-Term Adjustments
If funds are added or reduced mid-period, per diem amounts are calculated separately.
Example: $50,000 for 15 days + $20,000 for 15 days → interest is summed for both segments.
Payoffs in the System
Interest-Only Loans
Payoffs are always irregular. Interest accrues up to the exact payoff date.
Example: $100,000 loan at 12% annual interest, payoff 15 days after last payment (365-day basis).
Daily Interest = (100,000 × 12%) ÷ 365 = 32.88
Interest Due = 15 × 32.88 = 493.20
Amortized Loans
Regular Period Payoff (on due date): Treated as a normal payment (principal + interest), no extra per diem.
Example: Monthly payment is 1,200. Payoff = remaining principal after this payment + any charges.Irregular Period Payoff (off-cycle): Interest accrues from last scheduled payment to payoff date.
Example: Last payment March 1, payoff March 20 (20 days later).
Daily Interest = (Remaining Principal × Annual Rate) ÷ 365
Interest Due = 20 × Daily Interest