Loan Performer supports the following interest calculation methods:
Flat Rate: Loan amount times Annual interest rate (divided by 100), times the loan period (as defined below). The loan period includes the grace period. If you activate 'Interest Calculation in Days' (Configuration/Loan Product), the loan period is calculated in days and divided by the number of interest days per year as set under "System/Configuration/General". If the check box for Interest Calculation in Days is not checked, the loan period is equal to the number of instalments divided by the number of instalment periods per year. Suppose we have a weekly loan of 16 instalments plus 1 week grace period (the user has to enter 7 for the grace period). The period in the formula loan amount times interest times period, is now calculated as (7 days/7 + 16 instalments)/52. The grace period counts for 1 installment, so we have 17 weeks as loan period over a total of 52 weeks per year.
The number of weeks per year can also be defined by the user. Suppose you have a 16 weeks loan for which you calculate interest as 4 months. Normally Loan Performer would calculate this as 16 over 52 weeks in a year which is not the same as 4 out of 12 months. However you can set the number of weeks to 48 on page Configuration/General, and then the interest will be calculated as 16 over 48 which is the same as 4 over 12. Now the interest for a 16 weeks loan will give the same result as if this was a 4 months loan.
If the instalment period is bi-weekly or monthly, the total period in bi-weeks or months is divided by 26 or 12 as there are 26 bi-weeks or 12 months in a year.
In case of Declining Balance, there are 2 methods: Amortization and Discounted. With Amortization, total amounts per instalment are equal (annuities), but principal payment per instalment is increasing while interest amount is declining. This is the equivalent of the PMT function in Excel.
Total interest is now 76.11. The PMT function has a slightly higher total interest than the Declining Balance Discounted. The main advantage of the method is to have equal instalment amounts.
With Discounted, you get equal principal amounts and declining interest amounts per instalment.
For example, suppose that, as above, we have a loan of 1000 to be repaid in 4 equal, monthly instalments, with annual interest of 36%.
Declining Balance Discounted (with equal principal amounts and declining interest) gives:
For instalment 1. Principal: 250 plus Interest 1000 * 36/100/12 = 30.00, total 280.0
For instalment 2: Principal: 250 plus Interest 750 * 36/100/12 = 22.50, total 272.2
For instalment 3: Principal: 250 plus Interest 500 * 36/100/12 = 15.00, total 265.0 For instalment 4: Principal: 250 plus Interest 250 * 36/100/12 = 7.50, total 257.5
Total interest is 75.00 with unequal instalment amounts.
If you activate 'Interest to be paid also in grace period', Loan Performer also calculates instalments during the grace period. These are instalments in which the client has to pay interest only. The number of instalments that fall in the grace period equals: grace period in days divided by 7 (if weekly instalments), 14 (if bi-weekly), 15 (if half-monthly), 30 (if monthly), 60 (if two-monthly), 90 (if quarterly), 120 (if four monthly), 180 (if semi-annual) or 360 (if annual). If needed; LPF will make the necessary rounding.
If you want to enter a repayment schedule with 'Balloon' interest, you can use the example below. This kind of loan has interest dues for all instalments and the total principal amount is paid with the last instalment. Suppose you have a 100,000 $ loan for 12 months. If you enter this loan with 330 days grace period (= 11 months) and 1 monthly instalment with the checkbox 'Also Grace' activated, you will get a repayment schedule of 12 instalments of interest only and with the last instalment the total principal amount.
If you activate 'Up-Front', no changes in the interest calculation are made, except that all interest will be charged with the first instalments, keeping the total of principal and interest equal. If on the 3rd page of Configuration/LoansLPFHELP.CLP002 you have activated the checkbox “Interest paid up-front means charged with 1st instalment”, no principal will be charged for the first instalment, only the full interest. This means that the amount that the client has to pay for the first instalment will be different from all the other instalments.
Interest Deducted means that interest will be deducted with disbursement. The client will not receive the full loan amount, but will receive the loan amount minus the interest. You will see with the loan repayment schedule that Loan Performer adds one more instalment to the number of instalments that you enter. This is the instalment due at the moment of disbursement, which is for interest only. The combination of Interest Deducted and Interest Up-Front or Also Grace is not possible.
Loans can be classified according to 3 user-defined categories. These categories have to be created under menu Support Files/Loans Category 4, 5 or 6. You could use one category for agricultural/commercial loans, another for private/business loans and the third for subsidised/non-subsidised loans.
Calculation of accrued interest: The interest accrued can be calculated in due course with the menu Accounts/Calculate Accrued Interest. Used with the option “view”, the process lists all the loans with the interest amount that is past due. Following GL accounts (US chart of accounts) are updated only if the user decides to print the report (“print” option):125010 Accrued Interest Due Ind (Balance A/C) Debit 125020 Accrued Interest Due Grp (Balance A/C) Debit430040 Accrued Interest to be received loans (Revenue A/C) Credit 430060 Accrued Interest to be received Grp loans (Revenue A/C) Credit Accrued interest accounts are modifiable system accounts.
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