Attention! Loan interest is calculated at the nominal interest rate. The latter shows the interest accrued to the outstanding loan principle annually. The actual annual percentage rate (APR) shows the cost of the loan in case of due and timely repayments under the agreement.
The amount of interest depends on the annual nominal interest rate and method of loan repayment.
The loan may be repaid by one of the methods below:
- Differentiated - repayment of principal in equal portions in which case monthly payments consist of equal principal amounts and varying interest. As a result of reducing the interest, the amount of your monthly payments decreases each month.
- Annuity - fixed monthly installments, where the monthly payment throughout the repayment period remains the same and consists of a portion of loan and a portion of interest.
- Mixed - the client may choose an individual repayment schedule based on the seasonality of cash flows, provided that the amount of principal repaid each year makes at least 5% of contractual amount in case of loans for purchase/renovation/construction of residential and commercial property and investment loans.
If you choose to repay the loan by the 2nd method, the total amount of payable interest will be higher than in the 1st case.
The 2nd method, however, allows you planning your expenses, because you know the exact amount you’re going to pay each month.
If you repay your loan by differentiated method, the amount of monthly payment shall be calculated according to the following formula:
R = m / n + m * r % / 365 * o, where
R is your monthly payment
m is the loan principal
n is the loan term expressed in months
r is the annual interest rate
օ is the number of days in one month
If you repay your loan by annuity, the amount of monthly payment shall be calculated by the following formula:
R = P x r / (1 – 1/(1 + r)n), where
R is your monthly payment
P is the loan amount
n is total number of loan repayments throughout the whole loan term (number of months)
r is a monthly interest rate which is equal to 1/12 of the annual interest rate specified in the loan agreement at the moment of loan disbursement
The amount of monthly payments is rounded to one decimal place.
The outstanding loan is calculated according to the following formula:
Pt = R x ((1 – 1/(1 + r) n) / r, where
Pt is the actual loan outstanding by the end of the term
R is your monthly repayment
t is the number of repayments due by the end of the loan term (number of months)
r is a monthly interest rate which is equal to 1/12 of the annual interest rate specified in the loan agreement at the moment of loan disbursement
Annual percentage rate may be calculated out of the following formula:
where
i is the annual percentage rate (APR)
A is the loan principal (the amount initially provided by the lender to the borrower)
n is the sequence number of loan payment
N is the sequence number of the last payment
Kn is the amount of nth payment under the loan
Dn is the number of days from the day of loan disbursement up to the day of the nth payment
The annual percentage rate “i” may be calculated, if the other data of the equation are available from the loan agreement or another source.
APR calculation example
Loan facility: consumer loan secured by property
Principal loan amount: AMD 15,000,000
Annual interest rate: 17%
Term: 60 months
Repayment method: annuity (fixed payments consisting of a portion of a loan and a portion on interest)
Loan disbursement lumpsum fee: AMD 75,000
Insurance fee: 0.16% of the outstanding loan principal every year
Real estate appraisal fee: AMD 15,000
Fee for the unified reference on absence of encumbrance on the real estate: AMD 10,300
Pledge agreement notarization fee: AMD 13,000
Fee for state registration of security interest: AMD 26,000
Start day: 16/09/2014
First payment day: 11/10/2014
Annual percentage rate: 19.14 %
Annual percentage rate is defined on the basis of its constituent conditions, is provisional and may change throughout the validity term of the agreement depending on the early repayment of the loan by the borrower and changes in constituents.
Interest Calculation: Representative Example
Principal loan amount: AMD 1,000,000
Annual interest rate: 20%
Loan term: 36 months
Daily interest will make 1,000,000*20/100/365=548 AMD.
Monthly payment in case of repayment by annuity will make AMD 37,163.6 AMD.