Calculation of the Loan Repayment Plan

Are you also struggling with a loan to purchase your home? Can’t you understand the financial statements of the banks and you have no idea how much you’re really going to spend ? Continue reading and find out how to calculate the loan repayment plan !

The calculation of the amortization plan of a loan describes the trend of the installments and their composition between capital and interest. The single installment in fact consists of two distinguishable components: the principal amount, which counts the portion of the loan received on loan that is being returned with that payment, and the interest portion, which instead concerns the payment of an interest rate. Each installment will therefore consist of both quotas. However, the methods by which the amortization schedule makes this calculation may be different. Here we will explain how the calculation of the amortization plan by French method works.

This method of counting is also called “in constant installments” , since it provides for a succession of installments with the same amount. In this way, a certain security and predictability regarding the costs to be incurred in the loan repayment period is guaranteed to those who have contracted the loan. The return of a loan requires a prolonged effort over time and it is very convenient to know the amount of the installment. We remind you that, in any case, this sum depends on various factors, such as the amount received on loan, the interest rate applied, the duration of the loan and the frequency of the installments. These indications are valid both for the amortization of a mortgage and for that of a loan of another type.

Depreciation with the French method achieves the objective of maintaining constant installments assuming that the interest rate is higher at the start of the repayment period, given that the rate, expressed as a percentage of the loaned capital, is calculated on a larger residual capital than the subsequent installments. Consequently, as the installments are paid, the residual capital to be repaid will be less consistent and consequently the interest rate will also be lower. To compensate for this decline, the French formula provides that within the single installment the share of capital to be repaid increases from time to time, keeping the value of the periodic payment constant.

If this calculation seems too complicated, there is no problem: online you can find some calculation tools , like the one on this site, which allow you to quickly get the desired result. Just choose the option “Constant installment (French method)”, indicate the financed capital, the annual rate and the frequency of the installments, as well as the duration of the loan. In this way you will get a calculation of the amortization plan with a French method of a mortgage or a loan, which always provides equal installments.

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