When you initiate a personal or finalized loan (you must instead make a separate speech for the bond one), to have the financial performance of the latter always under control, you proceed to calculate the so-called amortization plan, with any interest and share capital. Taking these variables into account, in fact, allows you to better manage your money and to monitor the progress of the loan that has been requested. But how do you calculate it? Is it a difficult operation that belongs only to the banks, or can everyone be able to foresee it? Let’s try to understand it.
The differences between the various types of amortization plans
The first thing you need to know is that there are different types of amortization plans: the Italian one, the French one and the German one. The Italian plan (now little used by banks) provides for installments that decrease from time to time, as well as the interest rates. What remains constant is the capital quota.
In the French plan, however (the most used by banks today), the installments to be paid are always constant. The Italian plan, therefore, will see higher installments at the beginning and lower installments at the end, while the French plan involves a payment of the final amount a little more salty. Finally, the German amortization plan is similar to the French one, with the only difference that interest must be paid in advance.
Although less widespread it is necessary to highlight that there is also the American amortization plan, characterized by an investment and a financing operation (see also Immediate online loans).
How to Calculate a Loan Amortization Plan
Unlike what is commonly thought, calculating a loan amortization plan, with interest and principal, is not complicated. Some examples will be enough to make these concepts clear. In the loans that the bank makes, within the amortization plan, as we know, interest is also included, which will have a voice in the calculation. Let’s say you ask for a loan from a bank of 4,000 USD (see also I need money immediately), to be repaid in 20 months with an interest of 6% and with a monthly installment. Both in the Italian and French amortization plans there will be the items “Residual capital”, “Capital share”, “Interest share” and “Installment amount”.
In the Italian amortization, however, the items will correspond to the 1st month at Capital Share: 200 USD; Interest Rate: 20 USD; Installment amount: 220 USD; residual capital: 3,800 USD. In the second month the principal portion remains the same, while the interest portion is recalculated on the residual principal, gradually decreasing. In French amortization, on the other hand, the principal portion does not remain the same, but increases month after month, while the interest portion, on the contrary, decreases, leaving the amount of the installment constant.
This calculation method is useful, because it is released from the specific reference product (applicable, for example, both for financing with Unicredit and for an Inpdap). If, however, you do not want to do it yourself but rely on more comfortable solutions, online there are platforms that allow you to calculate in detail a loan amortization plan, with interest and principal.