Interest Method 7 versus Interest Method 1 (SAP Library)

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 USD
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
01.03. - 30.03.	30	1 000 000.00 USD	8 333.33 USD
01.04. - 30.04.	30	500 000.00 USD	4 166.67 USD

B) Interest calculation method 1 (360E/360):

This graphic is explained in the accompanying text

Interest calculation method 1 generates the following interest payments:

Calculation period	Interest days	Calculation base:	Interest Payment
01.03. - 29.03.	29	1 000 000.00 USD	8 055.56 USD
30.03. - 31.03.	1	500 000.00 USD	138.89 USD
01.04. - 30.04.	30	500 000.00 USD	4 166.67 USD

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).