How to calculate a differentiated loan?

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Loan products are popular among the population. Bank offices offer different conditions, but in any case, the potential client will have to return not only the loan amount, but also the accrued interest. On the one hand, it seems that everything is simple. However, not all clients know what the difference is between an annuity and a differentiated loan. Moreover, many do not delve into the terms of the contract and do not even know how payments are made. Let's set the difference.

Annuity

The peculiarity of this method of repaying loans is that throughout the entire period of the loan, the amount of payments remains unchanged. In fact, this means that the client will repay his own debt in equal amounts of payments, which will include part of the loan,as well as accrued interest.

Like a differentiated loan, an annuity loan has certain advantages. In particular, they consist in the fact that throughout the entire period you need to pay the same amount. This saves the client from having to make additional calculations. Moreover, the borrower can use the auto-repayment service, losing the need to deposit funds on the due date.

Differentiated loan

This is an incredibly rare product. Only a few organizations present in the consumer lending market are ready to offer it to their own clients. This is due to the fact that it brings some financial benefit to potential customers, but at the same time reduces the profit of the banking organization.

Differentiated loan repayment has an important feature. It consists in the fact that every month the amount of payment will be reduced. Accordingly, the greatest financial burden will fall on the client at the beginning of repayment. However, every month the credit burden will be reduced. A similar feature is associated with the principles of calculating interest on debt. However, we will talk about the calculations below.

Features

Each banking product has its own characteristics. If you calculate a differentiated loan, it becomes clear why the amount of payments changes from month to month.

This is due to the fact that you will carry out the repayment of the main debt in equal frequent. And the difference in amountswill be related to the change in accrued interest. After all, with each next payment, your debt will decrease. Along with it, the amount of accrued interest. The client will have to relentlessly follow the payment schedule or contact the bank. A differentiated loan constantly changes the amount of the payment that needs to be repaid. The client must know exactly how much to deposit.

Credit load

If a similar method of calculating interest is chosen, then the potential client must be confident in their own financial capabilities. Payments will be impressive. As a rule, in the first months they are twenty or more percent higher than the payments that are assigned under the annuity scheme.

However, gradually the situation will change in favor of the client, and the financial burden will be reduced and will be lower than with an annuity loan. This is why differentiated may be preferable for some customers.

Similarities and differences

As you can see, both annuity and differentiated payments have a lot in common. This becomes clear if you delve into the structure of each of them. Both payments include part of the principal debt, as well as accrued interest. However, there are many differences.

Annuity payments involve the repayment of debt by the borrower in equal installments. This allows you to evenly distribute the credit burden for the entire period with the gradual repayment of the principal, as well as accrued interest. However, this advantage is actuallyturns into a significant disadvantage for the borrower. With an annuity repayment scheme, the overpayment is much higher. This is due to the fact that the repayment of the principal debt is incredibly slow, which is beneficial to the banking organization, but not to the debtor.

Differentiated loan payment is more beneficial to the debtor. However, this is well known to banking organizations, so loans on such conditions are issued extremely rarely. In addition, you need to understand that during the initial period of loan repayment, the borrower has an increased burden. This is due to the fact that the monthly payment includes a fixed part of the principal debt, as well as accrued interest, which will decrease with each installment.

Be prepared for the fact that most of the existing banking enterprises will offer you an annuity loan payment scheme. This is due to the fact that such a scheme promises greater profits, and also creates convenience in calculations. After all, the amount of the monthly payment is unchanged throughout the entire loan period.

Which is better?

It is worth noting that a differentiated loan is less profitable for banking organizations than an annuity one. This is due to the fact that at the beginning of debt repayment, the client makes payments, which for the most part consist of accrued interest. At the same time, the repayment of the main debt occurs at an extremely slow pace. Accordingly, the higher the debt, the more interest can be charged.

Annuity loan allows the bankearn more than differentiated credit. That is why the vast majority of companies present in the consumer lending market offer this repayment method.

What to choose?

Now you know what a differentiable loan payment is and you can give it preference. However, in practice, be prepared for the fact that most banks will refuse to issue you a loan on such conditions.

Moreover, do not think that the overpayment with such a scheme is always lower. When making a choice, you must first take into account the specific offer. It is possible that an annuity loan will be able to offer you the most favorable interest rate.

It is equally important to consider your own capabilities. After all, not every potential client will be able to cope with the increased credit burden. That's why you should read the following paragraph beforehand.

How to calculate a differentiated loan?

This is an important question for potential borrowers who plan to use this repayment scheme. It must be said that the settlement scheme for differentiated payments is not simple. Let's try to figure it out.

The main feature is that for each next payment you need to recalculate the amount. After all, it will constantly change. The calculation formula consists of two parts.

Principal balance / Number of periods + Principal balance Interest rate / 10012

First of all, let's calculate the first part. To do this, you need to know the balance of the debt, as well as the remaining payment period, or rather the number of payments to be made.

Assume that the balance of the debt is 10,000 rubles, which must be paid within ten months. Then the result of the calculations will be 1000.

Then we calculate the second part of the formula, after specifying the data. In this case, only the interest rate will be needed, since the balance of the principal debt is already known to us. The numbers 10012 are present in order to calculate the monthly payment.

So, if the interest rate is conditional ten percent, then it will be easy to calculate using the second part of the differential loan formula.

10 00018 / 10012

According to the results of calculations, we get 150. This is the amount of accrued interest.

It remains only to add up the results of both parts. We add 1000 and 150. As a result, we find out that the amount of the current payment is 1150 rubles. It must be remembered that this amount is not constant and the next payment will be slightly lower. However, it will have to be recalculated.