There are various credit or loan programs offered by finance companies. Each of these loans offered can be tailored to the needs of each debtor. For example for business capital, education costs, investment, health, and others.
One day, in the middle of your credit period, you may experience a dilemma when you suddenly get large funds. When faced with this situation, maybe you will think about immediately paying off the remaining installments and allocating the next funds for other things.
Well, when this happens, it's important for you to understand how to calculate credit repayment before deciding to quickly pay off the remaining installments.
This is because each financing company has its own terms and conditions. Including a penalty, if you pay off a credit or loan before the due date.
This penalty will be charged to the debtor as a form of compensation for violation of the agreement which results in reduced profits for the finance company.
The amount of the penalty fee varies, depending on the loan program and applicable policies. You can see how to calculate accelerated credit repayments in this article.
Types of Fees in Applying for a Loan
When applying for a loan, there are several things that you must pay attention to besides the interest charged to the debtor. So, what are the fees we need to pay in applying for a loan? The following is an explanation of each cost. Make sure you understand it before knowing how to calculate accelerated credit repayment.
1. Provision Fee
The provision fee is the fee for signing the loan application received and immediately deducted from the loan ceiling. Each finance company and the bank has a different amount of provision fees. Even so, generally, the fees charged range from 1-4% of the ceiling amount.
2. Annual Fee
Annual fees are fees charged based on the tenor or period of a loan. The annual fee ranges from 1-2% of the ceiling for the first year, then the nominal amount paid is the same for the following years.
3. Accelerated Repayment Fees
The accelerated repayment fee is a penalty fee that will be charged to the debtor or customer if he pays the installments prematurely. The amount of this fee is about 5-7% of the total remaining bill.
You can get more details regarding how to calculate accelerated credit repayments in the next discussion in this article.
4. Late Fines
Late fines are fees that must be paid if you experience delays in paying installments. The amount is relative, depending on the nominal that has been set by each financing company. Therefore, try not to be late paying.
5. Insurance Fee
The last is the cost of insurance. This one fee is optional, and may or may not be taken. The existence of this insurance fee aims to protect the debtor's family from financial risks.
For example, if the debtor dies and has chosen the cost of insurance, the remaining installments will be considered paid off because the insurance has taken over. Thus the family left behind will not be burdened by the remaining installments.
How to Accelerate Credit Calculation
After knowing the various costs of applying for a loan, here's how to calculate an accelerated credit that you need to know complete with an example of the calculation. Let's just discuss one by one as below.
Image Source: Pexels/Mikhail Nilov
1. Calculate the Principal Balance and Interest on Loans
The first way to calculate accelerated credit repayment is to calculate the balance of the principal debt and the remaining interest on the loan. The calculation formula is:
Principal Debt Balance: Total Loan Ceiling – Amount of Principal Installment and Current Interest
Current Interest: Total Interest – Accumulated Interest Until Current Installments
An example of the calculation is if you have a loan of IDR 80 million with a tenor of 36 months, flat interest of 2% per month, and want to pay off the entire loan in the 9th month of installments. Then the calculation of accelerated credit repayment is:
- Amount of principal installment: IDR 80 million : 36 = IDR 2,222,222 (If up to the 8th month, the total principal installment is IDR 17,777,778)
- Amount of interest per month = 2% x IDR 80 million = IDR 1,600,000 (If it reaches the 8th month, then the total interest is IDR 12,800,000)
- From the above calculation, the total monthly installment is IDR 3,822,222.
- If the payment is made in the 9th month, then the total installment up to the 8th month is Rp. 3,822,222 x 8 = Rp. 30,577,776.
- Then, the total accrued interest is the total interest – accumulated interest until the 8th month = (2% x IDR 80 million x 36) – IDR 12,800,000 = IDR 44,800,000
2. Use Savings As Repayment Acceleration
Accelerated repayments are generally carried out by using funds that have been accumulated for a long time, such as from savings funds. If you get an annual bonus from the company, it's a good idea to pool those funds for your prepayment payments.
3. Calculate Penalty Accelerated Repayment
The third way to calculate accelerated credit repayment is to calculate the nominal penalty charged. Generally, in every credit agreement, there is a clause that requires the debtor to pay a fine if you want to accelerate credit repayment. The amount of the fine is usually calculated as a percentage of the total remaining principal of your debt. Each company imposes a different penalty percentage.
An example of the calculation is if you apply for a loan of IDR 10 million and a 5% penalty fee for a 2-year tenor with the remaining principal debt in the 9th month is IDR 2 million. So, the total penalty fees you have to pay are:
IDR 2 Million + (Remaining Debt x Penalty Fee) = IDR 2 Million + (IDR 2 million x 5%) = IDR 2,100,000.
4. Calculate Arrears and Late Payment Penalties
The fourth method of calculating accelerated credit repayment is to calculate the arrears fees or late payment penalties if any. The formula for calculating late fees per day is (5% x Installments per month) / 30 days. After getting the late fee per day, multiply it by the total number of days late. An example of the calculation is if you are late in paying an installment 5 days from the due date with monthly installments of Rp. 1.5 million, then the calculation of the late fee is [(5% x Rp. 1.5 million)/30 days] x 5 days = Rp. 12,500.
5. Paying Expedited Repayment Administration Fees
The last way to calculate accelerated credit repayment is to pay the administrative fee for the accelerated repayment. The amount of administrative fees for early repayment is usually distinguished based on the age of the debtor. If the debtor is 50 years old and under, an administrative fee of 3% of the credit limit is charged. Meanwhile, for debtors aged 50 years and over, an administrative fee of 3.5% of the credit limit is charged. An example of the calculation is if you have a loan ceiling of 60 million and are 40 years old, then the administrative fee charged is IDR 1,800,000.
Sobat BFI, that's an explanation regarding how to calculate credit repayments faster. In conclusion, paying off the remaining installments before the maturity period requires more funds than paying the installments every month according to the agreement. Whatever the decision, make sure you have carefully considered the decision. Hopefully, this information can be useful for you.
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