Loan Products Interest Calculation Methods in Loans
| Interest Calculation Methods in Loans |
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| Last Updated on Tuesday, 28 February 2012 15:21 |
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Mambu provides you three ways of calculating the interest rate - flat, declining balance and declining balance with equal installments. When creating a new loan product, you will need to choose one of these methods to be associated to that product and all the accounts created under it.
Next you can see how the repayment schedules would look like for each of the methods.
Flat The interest is charged on the original amount of the loan. The repayments will all have the same value throughout the loan period.
Declining Balance In this method the interest is calculated on the principal that hasn't been paid yet. The client will then be paying smaller installments over time as the principal to be paid decreases.
Declining Balance (equal installments) Just like for the Declining Balance method, the interest is also calculated on the principal that hasn't been paid for the loan. The difference here is that the client will pay equal installments for the duration of the loan as the interest decreases and the principal increases over the installments.
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