I need an expert in how loan payments, interest etc is calculated.
Let's say I borrow from a relative. It's setup that I make payments as I can afford to. (Please, no smart alec remarks, this is an actual situation, it's just not me!!!)
I borrow $10,000 with no specified time to have it repaid by. We agree that the interest rate will float to match the rate he would get having the money in savings.
Now, lets say first month I can pay $200. How do I calculate the amount that is prinicipal and the amount that is interest?
Second month, I can't afford to make a payment.
Third month, I can pay $100. Again, how do I calculate interest and principal? And of course, because I missed month 2 payment totally, the lender is out the interest for the money for that month if he'd had it in the bank.
Any questions? Have I explained this right that it's understandable?
Thanks
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1966 Strato Chief 2 door, 427 4 speed, 45,000 original miles
1966 Grande Parisienne, 396 1 of 23 factory air cars
I would set up an amortization table based on the known parameters probably assume a 10 to 15 year loan and lock the rate in for at least 6 months at a time. This will give you an expected payment each month. Then you apply the payment to the amortization table, if it isn't enough then the next payment goes to cover the difference. This way you could be 6 months into the loan but payments made may have only covered two months. Normally there are penalties and interest on unpaid balances but I don't think this applies in this case. Also payments are generally applied to interest first then principle.
I understand what you mean Ray. Have you seen anything online that fits the bill ever? I don't seem to have luck finding something that will work for this.
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1966 Strato Chief 2 door, 427 4 speed, 45,000 original miles
1966 Grande Parisienne, 396 1 of 23 factory air cars
carl, you should really suggest a payment schedule or deadline and perhaps that the person 'personally guarantee' (i.e. in case its for a business startup). doesnt mean it has to be acted upon, especially if its family, its a really slippery slope.... i am aware of a similar situation, interest was agreed to, no schedule! so there they are 20 years later and there's nothing but excuses and no leverage to collect (perhaps name some assets to lien against)... also your interest rate as you've assumed is variable daily... 73SC has some good advice/assumption about fixed rates and terms, otherwise your variables are infinite....
Without saying too much, I can say there is no danger of any problems coming out of this loan arrangement. It would not matter if the loan is never repaid. It's kind of just a transfer from one account to another without ever caring if it's paid back. It's more a matter of doing some accounting to make sure that the one account (the one that is lending) is properly compensated for lending the money to the other account (the borrower).
The advice to fix the rate for 6 months at a time or something is a good idea, yes.
I am just seeking a chart to make the calculation easy when each payment is made.
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1966 Strato Chief 2 door, 427 4 speed, 45,000 original miles
1966 Grande Parisienne, 396 1 of 23 factory air cars
carl you can probably use an on online loan calculator like this http://www.bankrate.com/brm/popcalc2.asp
since its not a really a big concern to count pennies, you can use this to set a target payments and re-evaluate every 6 months with the current interest rate and the balance of the loan....
Carl I am not a banking Guru, but would it be simpler, to just keep track of interest during each year and add it on,(at end of year) and then subtract payments,you paid during that year.. If you paid more, than the interest amount, the loan would be calculated on the lower amount, as each year goes by? Would this work to pay interest yearly? or do you have to pay some interst each month? .. We are not all smart alecs, all the time Carl Hicks
What you have to do is figure out the how much interest you are paying by the day. Example $10,000 at 6%. is $600 for a year. Divide the 600 by 365 which comes to $1.65 a day. You make your first payment of $200 30 days after lending the money.
Loan $10,000 Payment $200 Interest 30x $1.65=$49.50 Principal $200.00-$49.50= $150.50
Balance $10,000 - $150.50= $9849.50.
The next time you make a payment you take the Balance X Interest Rate Divide by 365 . Then multiply the number of days from the last payment for the total interest. Subtract the interest from the payment amount which will give you your Principal. Then subtract the principal from the Balance.
If you make payments regularly the daily interest will always be smaller if the interest rate remains constant.
Your Welcome Carl. I'm a truck driver not a banker though. My father showed me this many years ago and this is how we calculate interest to him for our loans to him. It works great for the lender as he has X amount of dollars hidden where he does not have to delcare the interest as an income for tax purposes. It also works out good for the person borrowing as you only pay interest on a declining balance.
Here is another important money fact. The number 72 is used to calculate how long it takes money to double at different interest rates. At 10% 72 divided by 10= 7.2 years for money to double. At 6% 72 divided by 6 =12 years to double.
