Interest Method 7 versus Interest Method 1 Interest Method 7 versus Interest Method 1
The following example illustrates the effects of the interest calculation methods 7 and 1:
Loan conditions:
·
Commitment capital 1,000,000.00 DEM·
Final repayment·
Unscheduled repayment on 03/31·
Interest rate 10%, payment monthly at the end of the month
A) Interest calculation method 7 (360/360):
Interest calculation method 7 generates the following interest payments:
Calculation period |
Interest days |
Calculation base: |
Interest payment |
03/01 - 03/30 |
30 |
1,000,000.00 DEM |
8,333.33 DEM |
04/01 - 04/30 |
30 |
500,000.00 DEM |
4,166.67 DEM |
B) Interest calculation method 1 (360E/360):
Interest calculation method 1 generates the following interest payments:
Calculation period |
Interest days |
Calculation base: |
Interest payment |
03/01 - 03/29 |
29 |
1,000,000.00 DEM |
8,055.56 DEM |
03/30 - 03/31 |
1 |
500,000.00 DEM |
138.89 DEM |
04/01 - 04/30 |
30 |
500,000.00 DEM |
4,166.67 DEM |
Result:
If you use interest calculation method 7, the unscheduled repayment on 03/31 is not included until interest period 2. Interest calculation method 1 regards the 31st of the month as the 30th. It therefore dates the unscheduled repayment back to the 30th, which means that it is included in interest period 1 (incl. indicator active).