In this post, we will explain how you can calculate your monthly loan instalments the way bank calculates using R and Python. In financial world, analysts generally use MS Excel software for calculating principal and interest portion of instalment using PPMT, IPMT functions. As data science is growing and trending these days, it is important to know how you can do the same using popular data science programming languages such as R and Python.
The table below shows amortisation schedule of first year. Similarly you have for 5 more years as term is 6 years.
READ MORE »When you take a loan from bank at x% annual interest rate for N number of years. Bank calculates monthly (or quarterly) instalments based on the following factors :
- Loan Amount
- Annual Interest Rate
- Number of payments per year
- Number of years for loan to be repaid in instalments
Loan Amortisation Schedule
It refers to table of periodic loan payments explaining the breakup of principal and interest in each instalment/EMI until the loan is repaid at the end of its stipulated term. Monthly instalments are generally same every month throughout term if interest and term is not changed. Sometimes bank restructures loan portfolio and reduce interest rate but increase terms (i.e. number of years you need to pay monthly instalments) so monthly instalment gets changed.How much principal and interest in each instalment?
We generally pay high interest rate initially and it goes down after that in successive months. It is because it depends on loan balance. Once you pay first monthly instalment, your loan balance goes down from original loan amount (i.e origination loan amount) to (original loan amount - principal amount you paid in first instalment).Principal part in instalment goes up every month. In other words, Principal amount increases in following months. Since instalment is summation of principal and interest amount, when principal amount goes up, interest goes down to balance out.
Example : You took a personal loan of 50,000 over a period of 6 years at 8.5% per annum paid monthly (12 payments per year)The table below shows amortisation schedule of first year. Similarly you have for 5 more years as term is 6 years.
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