On a $1000 loan at 20% interest, why is my interest not $200 for one year?

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Q: On a $1000 loan at 20% interest, why is my interest not $200 for one year?

A: This is a common question that we often get and some information is missing to answer the question so we’ll analyse this, taking into account various scenarios and how to manage this in Margill Loan Manager.

There is a misunderstanding as to the concept of “amortization”.

Here is how we get to $200 in interest on a loan. It must have ONE (1) lump sum payment at the end (one year later) of 1200 to get a balance of 0.00. So there is no amortization in this loan:

Compute to get the Results table:

Let’s look at this with bi-weekly $0.00 payments just to see the interest accrued (so 26 payments and the last payment on Jan. 1, 2023 to give exactly one year). This is Compound interest (not Simple interest), so the interest keeps on increasing:

So you get exactly 200 (+ or – a few cents due to rounding) as the interest amount.
However, when you add true payments that pay interest and principal (every 2 weeks, so 26 for a full year approximately), you are not lending 1000 for 1 year since principal gets paid back every 2 weeks, thus reducing the interest accrued.

“Compute” to get a real amortization schedule at 20% annual (APR). Notice my balance goes down so the fortnightly interest (every 2 weeks) goes down and so does the interest per period. So for an amortized loan, the interest is very far from 200 total, only about half (96.96) because of the amortization effect.

There are two ways to get the desired $200 in accrued interest for 1 year when there are true principal and interest (P&I) payments:
Method 1): Calculate the REAL interest rate
  • Desired Interest per payment: 200 / 26 = 7.69
  • Principal per payment: 1000 / 26 = 38.46
  • So 26 payments of 46.15 each (26 x 46.15 = 1199.90)
Leave the Annual Nominal Rate blank and enter the Payment of 46.15. Margill will compute the rate.

 “Compute” and notice the real interest rate (APR) is now 43.97% (APR). We are at 199.90 in interest (almost 200).

2) Use Fees, not true interest
Other option is to use Column fees (that are not computed on a daily basis but entered once and no matter what, you will have 200 in “finance costs”, not real interest). Click on Add Fees (I called them Admin fees – you can rename them to anything you want) and add 7.69 (200 / 26) in “interest” (Admin Fees here) per payment.

Here are the results. I added a few cents in Admin Fees at the end and increased my payment to get exactly 200 as my finance cost. Notice my interest rate is 0% since I am now using Column fees, not real interest.

I also invite you to consult our White Paper on interest. It explains basics and more advanced issues with interest: https://www.margill.com/en/interest-calculation-white-paper/

Margill Loan Manager: Amount Due at current date or any date to “get back on track”

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A most appreciated feature in Margill Loan Manager (MLM) is its quick access to four variables, accessible in the reports or in the Main window, that allow the user to instantly see the amount that must be paid by the Borrower to “get back on track” if one or several payments are missed, partial or late.

Variables:

  • Amount due at Current Date (For final balance = 0.00)
  • Amount due at Current Date (For final balance = original balance)
  • Amount due report End Date (For final balance = 0.00)
  • Amount due report End Date (For final balance = original balance)

Example:

  • Loan amount: 25,000
  • Principal and interest payments for 18 months
  • Regular payment should be 1487.08 with a last payment of a few cents less.

Below is the payment schedule based on contract that would yield a balance of 0.00 if full payments were made on time:

Let’s suppose payment 4 is missed and payment 5 is partial, leading a hypothetical final balance of 2731.16 (in principal, interest and maybe fees had these been added):

Borrower calls you up today January 10, 2022 to know how much he must pay to be back on track. The amount can be seen in the Main window with the appropriate variable. In this case “Amount due at Current Date (For final balance = 0.00)”. So the Borrower would have to pay 2490.25 (today) so that the final balance of 2731.16 (in the year 2023) becomes 0.00. The difference is due to interest accrued on a higher amount if the outstanding amount is paid in the future as opposed to today.

If there had been a residual value, the proper variable would have been “Amount due at Current Date (For final balance = original balance)”

If Borrower wished to know the amount due at another date than today, then a report (Record List) would have been produced to get the data with one of the two variables “Amount due report End Date”.

Or you could have gone in the loan itself, inserted a line on the date, right click > Payments > Payments Adjusted for Balance = 0.00 (or Balance = X).

 

Activate this option in Tools > Settings > System Setting (Admin…)

 

For “up to current date” calculations, it is strongly advised to use the Automatic / Overnight tasks which compute totals during the night as opposed to when launching Margill in the morning.

Important notification regarding the Apache “Log4j2” vulnerability

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Please note that Margill products have not been impacted by the Apache “Log4j2” vulnerability.

The Margill Team wishes you all a very Happy New Year 2022!

Happy Holidays!

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The entire Margill team wishes you, in spite of the current exceptional situation, a very Happy Holiday Season. 

May 2022 be filled with happiness and health!

Photo Mira Kireeva – Unsplash

I am often faced with paying late alimony, and I want to be sure that the interest calculations they are hitting me with are correct. Can Margill Law Edition help me out?

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Question:

I am often faced with paying late alimony, and I want to be sure that the interest calculations they are hitting me with are correct. I pay 4% simple interest only on late or fractional payments. I am testing your software right now, and if I am say $500 short but pay it within 21 days the Recurring payments tell me that there is over $60 in interest, rather than the correct $1.15 ($500 late for 21 days at 4% simple annual interest). Is there another module I should be using for my application?

Answer:

You should be using the “Arrears” calculation (not rRecurring payments) and then you’ll get the $1.15…
With your example, 21 days late, you must enter the 500 alimony due on the 1st for example and then when you pay it, enter -500 on the 21st. So it keeps a running tab. You only enter the alimony missed or late, not if paid.
I don’t have your number of missed arrears but here’s an example. No missed arrears until July 1, 2020. Then Compute:
Results – nothing really intersting so far since I only have an amount due on July 1:
Then I add lines and a running balance continues.
In this example the July 1 amount is never paid but the September 1 amount is not paid on Sept 1 but on Sept 21.
I then started paying all my alimony and want to know the total amount owed today (Oct 20, 2021 at end of day). I added a line with a 0.00 payment:
If interest rates change, you can also change the rates…
You can even add irregular arrears before crating the scheule via Excel (if you have many).
Hope this helps
Marc Gelinas, Attorney, MBA

Webinar – What’s New in Version 5.3

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In this webinar, we are looking into what’s new in version 5.3 including increased automation and customization.

This is followed by a sneak peek at upcoming version 5.4 (available in November 2021), again with new automation aspects as well and many features you asked for.

Finally, we go over some aspects of the software that you may not know exist and that could help you in your day-to-day with Margill. Don’t miss this!


How can I mass import “Unpaid” payments with an Excel sheet in Margill Loan Manager? I need to obtain the Outstanding payment amounts.

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Question: How can I mass import “Unpaid” payments with an Excel sheet in Margill Loan Manager? I need to obtain the Outstanding payment amount too.

Answer: Usually, when payments are NOT made (so were skipped or the payments returned for non sufficient funds (NSF), on a historical basis, these would simply be ignored and only the Paid payments entered (even partial and late payments)

However, in order to count the number of Unpaid payments and to obtain the Outstanding amounts, it may be a good idea to enter payments lines of 0.00 and include the payment that SHOULD have been paid, thus allowing Margill to calculate the Outstanding payment amounts.

One would go through the “Post payment” tool under “Tools”. On the far right is the “Bulk Payment Import” button. You need “Import new payments”.

This mass (or bulk) import tool allows you to import payments (Paid pmt, partial pmt, late pmt, etc.) (as well as additional principal – a negative amount – and column fees and other information in the Results or payment table) but does not allow the import of Unpaid payments of 0.00. So we must be a little creative…

The tool does allow the import of what are called “Other” Line statuses. “Other” Line statuses never pay interest or principal – they are made to manage special scenarios and allow you to add more data in bulk such as Column Fees or other information in columns to the right. If the Outstanding amount was not important you could rename, for example, “Other 3” to “Unpaid” and mass import these. However, when “Other” is added, since this is not a real “payment”, no matter how it is renamed, an amount in the “Expected Pmt”  column will not affect the Outstanding as an Unpaid Pmt does (see example below where Other 3 does not increase the Outstanding to 1000):

In the question at hand, the Outstanding amount is required, so we cannot use an “Other” Line status with a payment of 0.00.

What can be done however, and this will be our solution, is to use a “Paid Pmt (x)” Line status, rename it to “Unpaid…” (renamed to “Unpaid Special” below) and mass import this Line status with a payment of 0.00 and an “Expected Pmt” for the amount that was supposed to be paid.

Margill allows “Paid” type Line statuses with a payment of 0.00. A little odd I agree, but this allows for greater flexibility. Even with the name “Unpaid”, the payment must not necessarily be 0.00 as in a real “Unpaid” Line status (line 6 below “Unpaid Visa” where must =0)

Once this Line status is created, in Bulk Payment Import > Import new payments, find the appropriate number for “Unpaid Special” (6 in this case – this is not the Line status order as in Line status Settings that vary depending on the order you desire). The Excel sheet must contain data and a header in columns A, B, C, D and L.

Here is the Excel sheet with only 2 loans. Notice I also added fees (column T for my Admin Fees)

Bulk import window:

Final result in Record 10003 after pressing on “Insert lines” with an Outstanding of 1300:

You can even get the number of each and every Line status through “Personalized Reports” > “Record List” (“Tally” theme):

What’s criminal? Lenders beware – amendments to Criminal Code under Bill C-274

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An Act to amend the Criminal Code Bill-C-274 (the Bill) entered first reading in the House of Commons on May 11, 2021. The Bill would amend1 the definitions of “criminal rate” and “interest” in subsection 347(2) of the Criminal Code, while also repealing section 347.1, which had allowed certain exceptions for payday loans.

The Bill will be of interest to lenders, especially payday lenders and other non-traditional lenders, as the amendments proposed would lower the criminal rate at which interest charged or received is under the Criminal Code from 60% to 30%.

To continue to read the text by Me Joyce M. Bernasek and Me Ramz Aziz from the law firm Osler, follow this link.

 

Is Margill Interest calculator or Margill Law calculator able to create a compound interest calculation with irregular payments and interest rates that change over time?

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Q: Is Margill Interest calculator or Margill Law calculator able to create a compound interest calculation with irregular payments and interest rates that change over time?

So is my understanding correct that your software will be able to work out the balance owing in terms of an overdue loan with compounded interest based on the following example:

Initial amount o/s            R 250 000             As at 1/01/2020                 Interest rate 7%

Interest rate changes as follows:

Format is DD/MM/YYYY
01/07/2020                         7.5%
01/09/2020                         8.25%
07/11/2020                         8.75%
05/02/2021                         9%

Payments received (R = Rands – South African currency):

5/02/2020            R 2 000
7/03/2020            R 5 000
1/04/2020            R 1 000
30/6/2020            R 500
5/08/2020            R 500
3/09/2020            R 500
15/01/2021            R 5 000
7/02/2021            R 2 000

What is the amount o/s as at today, with interest compounded monthly? Today we are April 30, 2021

A: Yes, very easily. Such calculations are the purpose of the software. Margill can do thus much more easily than with a spreadsheet and a lot let risk of error.

This was not really necessary but I first constructed an interest table (you could have changed the rates manually in the resulting payment schedule).
Go to Rate Tables and click on New Table. You must use this icon to add the dates and interest rates: .
Save the table. I saved it under the name “Tanya”…
Then go to the very powerfal calculation called “Recurring Payments”. Here is the information to first plug in (never mind my the $ currency –  my Windows currency is the $ – yours would be R).
Notice my Payment frequency is Irregular.
Notice also that I used an Interest Table instead of a fixed interest rate – we see the Tanya table.

Now to enter the irregular payments, click on . This window shows up.

You can either entre the payments manually in here (even add negative amounts that are principal increases):

Even if there weren’t many payments, I created a small Excel sheet for the import – very useful when there are dozens, hundreds or thousands of payments:

Then press on the Excel icon and select the Excel file:

Now Save and you get back to this window. Notice the check  that shows there’s data in the Irregular payments. We are now ready to Compute the Results table.

You will see this window appearing that asks until when do you wish to compute interest. I entered April 30. Interest will be computed until April 30 in the morning, not end of day.

Press on OK and we have the results.

Notice I added a line at the end just in case I wanted the interest until April 30 end of day (midnight) – so added a line with May 1. Industry standard says first day included, last day excluded. Use the icons on the far right to add, insert and delete lines. There’s also an Undo button.

You can save and update this table as required – you can add lines, change payments, insert payments if by error you had forgotten one, add or change interest rates, etc. You can do just about anything with this calculation.

The right mouse click offers many options:

 

Hope this answers your questions…

 

 

In the Loan Manager, is it possible to change a payment date for all loans at the same time?

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Q: In the Loan Manager, is it possible to change a payment date for all loans at the same time? For example, I want to change the date from March 26 to March 27?

A: This can be done in batch but each date will have to be modified. You can do this for “Due Pmt” and “Paid Pmt” lines only.

  • Go to Tools > Post Payments
  • Check “Use Date interval”
  • Enter dates between March 26, 2021 and March 26, 2021 (or other dates)

In theory, you would change only the Due Pmt lines so therefore you don’t have to check “Include all Payment Line statuses”.  In the following example, I checked the option but this is usually not necessary…

Afterwards, you need to copy and paste the March 27 date (the new date) and modify line by line (faster with Ctrl C and Ctrl V (copy/paste) compared to manually entering teh date):

You will then be able to modify the dates and the lines will become light green. The chronological order of the lines must be followed:

Once the changes are done, click “Apply” and dates will be modified.