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PAYMENTS PLAN FOR
LONG-TERM LOANS
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Long-term loans are a convenient means to pur-
chase a home, new car, or other expensive articles.
There are four modes of installment payment of
a loan. They are equal installments of principal,
equal installments of principal and interests,
add-on, and installments of decreasing principal
and interests.
These calculations can be performed by a desk-
top calculator capable of handling functions.
This program permits performing the same cal-
culations on the FP-200 with greater case.
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(1) Equal installments of principal
In this mode, the amount of monthly payment for the principal remains the same
throughout the term of loan. Since the balance of loan decreases linearly, the
amount of interest payment and the amount of principal plus interest decrease
accordingly. Thus, the calculation is easy_ However, this mode of payment is not
realistic because the amount of payment in the early periods is relatively greater
than that in the latter periods.
(2) Equal installments of principal plus interests
In this mode, the amount of interest for the entire term of loan for the total
amount of loan is calculated without regard to the fact that the balance of loan
long (e.g., housing loan), it is easy to make a payment plan.
(3) Add-on
In this mode, the amount of interest for the entire term of loan for the total
amount of loqn is calculated without regard to the fact that the balance of loan
decreases gradlially. Although the method of calculation is extremely easy, the net
interest becomes much higher than other mode of payment.
The add-on system is often used for commodities sold on a short-term loan basis.
This system should be avoided if you are a borrower.
(4) Installments of decreasing principal plus interests
In this mode, the monthly payment of principal and interest components is in-
creased at a fixed rate when a chronic inflation or continual increase in income is
expected. Since the calculation is complex, this program is particularly useful when
using this mode of payment.
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