Annuity payments: calculation, formula, early repayment
To date, in the economic sphere of social activity, a wide variety of methods are used for conducting settlements between subjects and organizations at various levels. For lovers of comfort modern service provides all the possibilities of cashless payments. When there is an urgent need for a certain amount of money that is not available at the moment, many apply for a loan to a bank or credit organization.
Choosing a loan offer
The consumer who wants to get a loan for a certain period usually pays the most attention to the interest rate. And according to this principle one or another credit offer is chosen. But an important factor is such an indicator of the profitability of the lending option, which reflects the way in which the forthcoming payments are made, for example, annuity payments.To date, most banks are not interested in the opinions of their clients on this issue and offer their own version, according to which all calculations for credit debts are based on the annuity system.
Types of calculation of credit payments
In addition to the annuity system for calculating regular credit payments, there is a differentiated system, which involves a gradual decrease in the amount of the monthly amount paid for a loan. The calculation of the annuity payment throughout the entire credit period remains unchanged. Banks and other organizations that are engaged in lending to organizations or consumers benefit more from the annuity system for calculating loan repayments, since the total amount of repayments for each loan issued in this case turns out to be larger than with a differentiated settlement system.
Desired loan amount
When a borrower is calculated using differentiated payments, the total loan amount is gradually reduced, and interest is calculated on its basis in a new way. Knowing such a nuance, those who wish to receive a loan can make an appropriate effort and find a bank in which they will be interested in their opinion on the option of calculating upcoming payments.But it is necessary to take into account in this case that the maximum possible monetary amount of the loan is much higher precisely with the annuity method of payment, and not when regular payments are differentiated.
Load initial payments
The main indicator of any successful economic transaction in the modern world is the receipt of mutual benefits by both parties, the annuity payment formula meets this condition. It is a mistake to assume that if it is profitable for a bank to establish annuity type payments, then the loan recipient is disadvantaged in their own interests. Annuity method of calculation has its undeniable advantages. People who have no money at the moment are applying for loans. If the annuity payment formula is used, there is no high material burden at the stage of initial loan repayments.
This option of obtaining a loan is more suitable for consumers with low income. The calculation of the annuity payment is the same throughout the entire credit period.
Duration of the loan period
Differentiated method of calculation assumesthat the first credit payments are much more significant not only in comparison with the subsequent ones, but also if we draw an analogy with the annuity calculations in a similar situation. The size of the overpayment for the loan, the accompanying annuity settlement system, is much smaller with short-term lending, but increases with a longer period of the borrowing period. Thus, in order to decide on taking a loan, payments for which will be carried out in accordance with a differentiated payment system, the consumer must have a sufficiently high level of income. This will give him the opportunity to fulfill his loan obligations at first.
If the borrower is not able to go for the high costs of the first payments on the loan, then it is more profitable for him to evenly distribute payments over the entire credit period, as in the case of annuity payments. Long-term lending, which is accompanied by annuity payments, becomes more profitable when taking a mortgage. In this case, under the influence of inflation, the initial load of regular payments becomes less significant by the end of the credit period.
Cons annuity payment and early payment
The main drawback of taking a loan with the calculation of the annuity system can be called the slowness of repayment of such debt. In the case of a differentiated settlement method, after the initial payments have already been made, the outstanding loan amount is much less. Repayment of annuity payments implies that at the beginning of the payment period, the client pays the loan interest, they constitute a large part of the initial expenses. Subsequent payments for the most part consist of the principal amount of the loan.
If the client applied to the bank for a loan and was offered an annuity payment, early repayment of the loan becomes less profitable. Especially if it does not occur at the stage of the first payments. If a loan is received by a client on the condition that he regularly makes an annuity payment, early repayment of the loan is subject to penalties. But it remains possible to repay the debt ahead of time, if you warn the bank in advance about your desire. Already paid loan interest is not returned to the borrower.
Classification of annuity payments
In the banking system, accepting annuity payments is possible if the customer of the bank is a regular consumer, and then when the loan agreement is concluded with a legal entity. Most annuity payments are accepted for consumer loans, but often this method of calculation is also used when concluding a mortgage lending agreement.
An annuity loan payment may relate to one of several types into which all regular payments of the same size are subdivided. It can be annual, quarterly or monthly. Depending on who is the borrower, annuity payments are divided into financial, pension, insurance, legal and paid by individuals. It is possible to conduct indefinite annuity payments, urgent annuity payments, settlements with the specified number of annuity payments, as well as urgent annuity payments with the possibility of early payment.
Calculation of regular annuity payments
In contrast to the differentiated system of calculating credit payments, which is distinguished by its simplicity, and therefore anyone can independently,without the help of bank employees, calculate their forthcoming expenses on a loan, repayment of annuity payments due to the need to calculate them using a complex formula. Not every average bank customer is able to use it. But, thanks to the existence of credit calculators, which have a function “annuity payment calculation formula”, many have the opportunity to make the necessary calculations and find out what amount they will have to pay in a given situation.
Almost every online resource of a large bank has built in such a computing system, which allows to carry out the calculation of the annuity payment independently. In each particular bank, the regular annuity payment formula has its own characteristics due to the presence of commissions and other indicators. The most commonly used in practice scheme of calculations includes such indicators as: frequency (KP), interest for the credit period (PS), the initial value of the loan (SK), the size of the annuity (AP). The calculation is as follows: AP = SK (PS / 1- (1 + PS) - KP).
Annuity payments are very profitable for any bank that provides lending services.Therefore, most of the loan offers that are popular today imply an annuity method for calculating regular settlements. But even if the bank offered to choose the method of calculation on its own, in connection with the conditions of a particular offer, this does not mean that the client should definitely prefer smaller payments based on a differentiated system. In some cases, it may still be necessary to use an annuity settlement system. It is easier for many borrowers to plan their upcoming family expenses. Other borrowers may like the lack of necessary, regular contact with the bank for information about the next upcoming payment.