Credit Fee

The installment of a credit is the periodic payment that a debtor undertakes to make to his creditor in order to return the financing that he granted.

In the quota two components can be distinguished. The first corresponds to the reimbursement of part of the borrowed capital (called principal ) while the other concerns accrued interest. The latter are calculated by multiplying the interest rate for  the period by the outstanding balance to be paid.

To explain it better we can show the following example. Assume that a credit of US $ 15,000 has been obtained at an interest rate of 3% per month and with six payments to be canceled every thirty days. Following the French amortization method, where all the installments are equal, we use the following formula:

Then, the amortization schedule would be as follows:

Interests Share Principal Balance
15,000.00
one 450.00 2,318.96 2,768.96 12,681.04
two 380.43 2,388.53 2,768.96 10,292.51
3 308.78 2,460.19 2,768.96 7,832.32
4 234.97 2,533.99 2,768.96 5,298.33
5 158.95 2,610.01 2,768.96 2,688.31
6 80.65 2,688.31 2,768.96
sum 1,613.78 15,000.00 16,613.78

Quota Calculation

To calculate the share of a loan we must first consider the interest rate . The higher the rate, the higher the financial expenses and the monthly payments must be higher.

Likewise, the longer the term of indebtedness, the lower the monthly payment will be. This, taking into account that the return of the principal will be distributed among a greater number of payments.

The quota of a loan also depends on other variables such as the initial installment and the grace period, if they exist in the contract.

Fee according to amortization method

The fee varies depending on another fundamental factor, the method of  financial amortization  used. If it is French, the monthly payments will be calculated so that they are all the same (As in the example shown above).

In the case of the German method, the fee will be variable. With this system, the repayment of the principal is divided into exactly equal parts, but the interest payable changes, becoming smaller and smaller as the loan is less to be canceled.

Thus, we would have as reference the following formula:

If we continue with the example outlined above, using the German method we would have the following amortization schedule:

 

Interests Share Principal Balance
0 15,000.00
one 450.00 2,500.00 2,950.00 12,500.00
two 375.00 2,500.00 2,875.00 10,000.00
3 300.00 2,500.00 2,800.00 7,500.00
4 225.00 2,500.00 2,725.00 5,000.00
5 150.00 2,500.00 2,650.00 2,500.00
6 75.00 2,500.00 2,575.00  –
sum 1,575.00 15,000.00 1,665.00.00

Finally, if it is the English method, all fees will be the same, except for the last one. This is because only at the end of the indebtedness term is the principal returned. In all other periods only accrued interest is paid.

Continuing with the data of the previous example, with the English method we would have the following payment schedule:

Interests Share Principal Balance
0 15,000.00
one 450.00 450.00 15,000.00
two 450.00 450.00 15,000.00
3 450.00 450.00 15,000.00
4 450.00 450.00 15,000.00
5 450.00 450.00 15,000.00
6 450.00 15,000.00 15,450.00  –
sum 2,700.00 15,000.00 17,700.00

 

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