Flexible peer to peer lending & borrowing

# Repayment instalment calculations

The interest paid by the borrower to the lender is calculated on the outstanding loan amount. With each instalment there is a small amount of the loan principal repaid and this reduces the interest charge for the next month. Because each monthly payment remains same, the amount of principal that is repaid will increase slightly each month and the interest will reduce. As the loan principal is repaid to the lender it is available to lend out again.
For users of Microsoft Excel there are some functions that can calculate monthly repayment and the amount of capital repaid and interest paid.
Taking a £10 loan at 7% over 36 months as an example.

The Excel function PMT provides the monthly repayment = PMT (rate, nper, pv, fv, type)
where
rate = nominal interest rate of the loan
nper = number of repayments
pv = present value or principal of the laon
fv =
is optional. It is the future value or the loan amount outstanding after all payments have been made. If this parameter is omitted, the PMT function assumes a value of 0.
type =is optional. Repayments are due at the end of the period (0) or repayments are due at the beginning of the period (1). If this parameter is omitted, the PMT function assumes a value of 0.

Eg= PMT( (1+7%)^(1/12)-1 , 36, -10, 0, 0 )= £0.3078( outstanding amount) * ((1 + rate%) ^ (days/365.25)-1)

There are two Excel functions that provide the capital repayment and interest that is due for a specific period. These are:
Capital = PPMT( rate, per, nper, pv, fv, type )
Interest = IPMT ( rate, per, nper, pv, fv, type )

For the 3rd payment, the capital and interest payment breakdown is as follows
Capital: PPMT( (1+7%)^(1/12)-1, 3, 36, -10, 0, 0 ) = £0.2541
Interest: IPMT ( (1+7%)^(1/12)-1, 3, 36, -10, 0, 0 ) = £0.0537
The table below shows some repayments:

 Instalment Principal Interest Total Repayment 1st £0.2512 £0.0565 £0.3078 2nd £0.2527 £0.0551 £0.3078 3rd £0.2541 £0.0537 £0.3078 etc Last (36) £0.3061 £0.0017 £0.3078