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Prepayment Recalculation Methods

Version 1

Prepayment Methods:

Original Payment schedule

Loan Amount: $1000

Tenure: 6 months

EMI Date: 21st of every month

Interest rate: 10.33%

_Calculations scenario: Monthly/daily basis_

_*Scenarios are based on the case of Overpayment._

_Loan Schedule:_

Case 1: No Recalculations:

  • On prepayment the amount will be deducted for the First two months with interest (I.e., accrued till the date 21 March) and then the remaining amount will be settled with third and fourth EMI principal amount.
  • Also, in this the principal and interest amount remain unchanged for the remaining instalments
  • So, out of total due 1000$, 600$ has been paid and adjusted till the 4th instalment and the remaining amount of instalment I.e., 83$ + the interest (which will be due on that Emi Date)
  • The remaining instalments is the same as in due with no change in principal amount and the interest as in logged for the future payments.
  • _Also, this will affect when the case is daily basis interest calculations, it will cover the interest amount to that date due, making the interest amount calculation and resulting to change in interest due on the respective payment date._

Case 2: Reschedule remaining Payments

  • _In this case, if any overpayment the EMI will be rescheduled but no change in interest as there it is calculated on Monthly basis._
  1. The case of overpayment, where the party has paid an amount of $600 on 21st march, so the instalments have been rescheduled.
  1. The EMI of 1st and 2nd month has been settled as is with the interest amount too, and the interest for the 3rd month has not been settled as it charged on monthly basis (that will be deduced from when accrued I.e., due date)
  1. The remaining amount needs to be settled as calculated for the future instalments.
  • _In this case, if any overpayment the EMI will be rescheduled with change in interest as there it is calculated on Daily basis._
  1. The case of overpayment, where let's suppose the party has paid an amount of $600 on 15th April, so the instalments and interest have been rescheduled.
  1. The EMI of 1st and 2nd month has been settled as is with the interest amount too, and the interest for the 3rd month has been settled till date (15th April) as it charged on daily basis up to that day and the remaining interest will also change accordingly, in case of declining balance method.
  1. The remaining amount needs to be settled as calculated for the future instalments.

Recalculate the schedule, keep the same number of terms

  • _In this case, if any overpayment the EMI will be rescheduled but no change in interest as there it is calculated on Monthly basis._
  1. The monthly Instalment will be recalculated based on the overpayment of $600 for the 3rd month, not affecting the changes on Next month instalments.
  1. The remaining months instalments keep changing as per the amount over paid.
  1. Also, the interest is charged for 1st and 2nd month as it was accrued, but for the 3rd month it hasn’t been paid as it is not yet due.
  • _In this case, if any overpayment the EMI will be rescheduled with a change in interest as there it is calculated on daily basis._
  1. The monthly Instalment will be recalculated based on the overpayment of $600 for the 3rd month, not affecting the changes on Next month instalments.
  1. The remaining months instalments and interest keep changing as per the amount over paid.
  1. Also, when the payment is let's say made of 15th April, it will be charged up to the same date, making a change in interest amount for future instalments

Recalculate the schedule, keep the same principal amount

  1. When using this method, where there is an overpayment, the next repayments will be recalculated based on the resulting principal balance and the repayment is allocated first on the due instalments.
  1. When the due instalments are paid, the number of instalments is reduced by allocating the remaining amount on the pending instalments at the bottom of the schedule and marking them as paid when the principal expected is covered.
  1. The interest gets changed based on payment of the last instalments and resulting to the new schedule.

Source: prepayment recalculation methods

Remaining Scenario’s:

  • Schedule with Late payment

_(Daily interest payment, Monthly interest payment, change in the principal amount and interest as per change based on time payments, early payments, late payments )_