Types of long Term Loans

Payment plan types for term loans

Loans are often paid off through a range of repayments over a certain timeframe. As a rule, these disbursements contain an interest amount calculated on the outstanding amount of the credit plus part of the outstanding amount of the credit. Part of the outstanding amount of the credit is paid in the form of a capital sum.

In general, there are two types of credit redemption plans - even redemption and even overall repayments. In the case of a regular amortisation table, the amount of the amortisation shall be the same for each instalment. This is calculated by multiplying the amount of the initial loans by the number of repayments.

The $10,000 credit shown in Table 1, for example, is split by the 20 one-year terms of payments, resulting in a capital of $500 per year. The interest shall be calculated on the amount of the outstanding amount of the credit for each repayment horizon. Since the outstanding amount of the credit declines with each capital repayment, the amount of the interest payable on each credit repayment also declines.

As a result, the overall amount disbursed (principal plus interest) is reduced, as shown in Figure 1. Beginning with $1,200 ($500 capital and $700 interest) in the first year, the overall payout drops to $535 ($500 capital and $35 interest) in the year 20, as shown in Table 1. Aggregate payments over the 20 year term are $17,350, consisting of the $10,000 Senior Credit plus $7,350 interest.

A uniform overall installment plan consists of a falling interest rate and a rising capital outlay. Reduced interest payments are offset by an increased capital repayment, so that the amount of the entire credit repayment stays stable over the term of the credit (Figure 2).

The interest payable falls as the outstanding balances decrease, as shown in Table 2. Remaining part of the amount of the loans is a capital sum. A large unsettled account at the beginning of the term of the credit means that most of the overall interest rate is paid with only a small capital repayment. As the capital disbursement is low in the early stages, the outstanding amount of the loans falls gradually.

Nevertheless, as disbursements proceed over the duration of the loans, the outstanding amount decreases, resulting in a lower interest payable and a higher capital outflow. In turn, the greater capital repayment will increase the installment of the decrease in the outstanding account balances. As an example, the interest payout is $700 and the capital payout is $244 in the first year, as shown in Table 2.

Interest is paid at $62 and capital at $882 during the last year 20 in which the loans were paid. However, this is in stark contrast to the uniform redemption plan, in which the redemption amount is equal over the redemption term and the outstanding amount decreases by the same amount in each term ($500 redemption payment), resulting in a firm $35 (7% x $500 = $35) decrease in the interest payable in each term.

Aggregate payments over the 20-year term are $18,879, which is composed of the $10,000 Senior Term Note plus $8,879 interest. Every time you make a repayment, the amount of the outstanding amount of the straight-line repayment plan loans is decreased by a specific amount. Each year, as shown in Table 1, the outstanding balances are decreased by $500.

At 10 years (halfway through the payback period), the outstanding amount of the loans is $5,000 (half the initial $10,000 loan). Conversely, the amount of the outstanding balances of the uniform overall settlement plan decreases gradually during the early term of the facility (e.g. $244 in the first year) and decreases rapidly towards the end of the term (e.g. $822 in year 20).

The outstanding amount in year 10 (halfway over the term of the loan) is USD 6 630, as shown in Table 2. More than half of the credit has not yet been paid back. Figure 3 shows this discrepancy in the reduction installment of the outstanding balances of the two redemption plans.

Since the outstanding amount of the loans with the regular amortisation table decreases more gradually than the regular amortisation table, the overall amount of interest over 20 years with the regular amortisation table is greater. As an example, in Table 1 and Table 2, the aggregate amount of interest disbursed over the term of the loans is $7,350 using the straight-line amortization table and $8,878 using the straight-line overall amortization table for an $1,528 uplift.

Accordingly, the overall costs of repayment of the credit are higher by the same amount for the same overall repayment plan. Several long-term loans involve a ballon payout. The remainder of the loans are due under this scheme after part of the year' s instalments have been paid. A uniform overall plan of amortization (spread over forty years) is shown in Chart 3.

Nevertheless, with the 10th year' instalment the remainder of the amount of the loan becomes due. It is the $10,058 ballon payout, which is made up of the $9,400 remainder of the principal and $658 interest per annum for the year ten, as shown in the table. Ballon provisions can be used if a company has finite payback capabilities in the first few years but can pay back or re-finance the loans after several years of operations (in this case 10 years).

Length of payback plan and date of payback can be adjusted to suit your specific circumstances. You can repay the credit over a longer term (e.g. 40 years in the example) in order to keep your early savings low. Sometimes the early advance can not be payed but will be incorporated into the money.

Monetary accounting or an e-Calculation table on a PC is a useful utility for calculating credit repayments using the uniform overall pay plan. "Interest rate" or "i" shall mean the interest per payday. "N "N" or "Nper" stands for the number of terms of pay. "PMT " shows the loans paid per payroll area.

If you know the other three loans, you can calculate one of the four above loans. If you know the amount taken out, the interest rates and the duration of the loans (number of terms of payment), you can calculate the amount of the loans to be paid. If, for example, you lend $10,000 at 7% over 20 years, your total $943.93 per annum will be paid.

Payments on loans (PMT) = ?

Discount interest factor (interest rate) = ? If you know the amount taken out, the amount of the credit and the interest rates, you can calculate the number of credit repayments. As an example, if you lend $10,000 at 7% interest and your payout is $943. 93, it will take 20 years for the loans to be repaid.

The number of loaned period (Nper) = ? If you know the amount of the loans, the interest rates and the duration of the loans (number of terms of payment), you can calculate the amount taken up. Like, for example, if your mortgage is $943. 93, the interest is 7% and you will pay back the 20 year long credit, the amount you lend is $10,000.