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This is in contrast to asking for a loan to a friend or relative. You must pay the loan principal and interest if you apply for a bank loan. This bank loan interest can be divided into several categories. One of which is interest paid by an annuity or installment system.
Customers who want to borrow money at the bank must know the type and method of calculating interest on this loan. because knowing the type of interest on this loan in general You can set the number of installments and repayment period according to your needs.
Annuity Definition
An annuity is a method of paying interest and borrowing money from a bank. In this method, the customer is only asked to pay the loan in fixed installments throughout the loan term.
For example, let’s say you apply for a bank loan of IDR 25,000,000 with an interest rate of 12% for 1 year. This interest payment is known as annuity. If you are asked to pay a fixed amount every month, for example IDR 2,250,000 per month, this makes it memorable for your customers. The amount you have to pay each month is definitely easier.
In this method, the first month’s installment will focus on paying interest first. while the last month will be used to pay the principal.
In addition to bank loans The annuity interest payment system is also used by other financial service providers such as insurance companies. P2P lending, or multi-finance company. Not just a loan This method of payment also applies to banks or companies that pay interest on deposits or investments to investors. Whether it is interest on deposits, profit sharing, etc.
Annuity Calculation Methods and Examples
The annuity formula is Annuity = P xix [(1+i)xt) / (1+i)t-1)].
information:
P : loan principal
hair : interest rate.
t : Loan term
However, to understand how this interest calculation method works, Let’s look at the following annuity example:
For example, you borrow 30,000,000 rupiah from the bank for 1 year with 12% interest per annum, then the number of installments you have to pay each month is:
| installment payment to |
Principal | interest payment | Installment amount | remaining principal |
| 0 | 30,000,000 | |||
| 1 | 2,365,500 | 300,000 | 2,665,500 | 27,634,500 |
| 2 | 2,389,155 | 276,345 | 2,665,500 | 25,245,345 |
| 3 | 2,413,047 | 252.453 | 2,665,500 | 22,832,298 |
| 4 | 2,437,177 | 228,323 | 2,665,500 | 20,395,121 |
| 5 | 2,461,549 | 203.951 | 2,665,500 | 17,933,573 |
| 6 | 2,486,164 | 179,336 | 2,665,500 | 15,447,408 |
| 7 | 2,511,026 | 154.474 | 2,665,500 | 12,936,382 |
| 8 | 2,536,136 | 129,364 | 2,665,500 | 10,400,246 |
| 9 | 2,561,498 | 104,002 | 2,665,500 | 7,838,749 |
| 10 | 2,587,113 | 78.387 | 2,665,500 | 5,251,636 |
| 11 | 2,612,984 | 52,516 | 2,665,500 | 2,638,653 |
| 12 | 2,639,113 | 26,387 | 2,665,500 | -461 |
From the above example It can be seen that the monthly fixed payment is IDR 2,665,500 during the first month. A large amount of money will be allocated for interest payments. The amount allocated for this interest payment gradually decreases. Conversely, the amount allocated to pay off the principal increases.
type of annuity
according to the billing and payment method Annuities can be divided into several types:
1. Ordinary annuity
An ordinary annuity is an annuity interest charged at the end of the month. This is one of the most widely used annuities in the banking world, for example as a means of payment. mortgage loan interest rate.
2. Annuity due (annuity due date)
An annuity due is an annuity that is paid at the beginning of the period. This type of annuity is typically used to pay insurance premiums. In this case, the customer must pay the insurance premium before submitting a claim.
3. Deferred installment
A deferred annuity is a type of annuity that can be paid at the beginning or end of the period. pay deposit interest to customers
4. Direct annuity
Direct annuity is a method of paying direct annuity interest without deferred at the end of the period or at the beginning of the period.
The advantages of an annuity
The advantage of using an annuity interest payment method is that it makes it easier for customers to pay. with fixed value Customers do not have to worry about how much credit they have to pay each month.
It also makes it easier for clients to manage their finances. This is because the fixed value makes it easy for them to set aside a portion of the money to use as an installment.
lack of annuity
The disadvantages of paying interest this way are: This makes it difficult for customers to pay off debt immediately. The reason is that customers will find it difficult to add all the installment payments to the bank. The faster the customer’s debt will be paid off.
Another drawback of applying for a loan with such an annuity system is how complex the calculations are. Customers cannot calculate installments by themselves. And it takes spreadsheet software such as Microsoft Excel and a calculator to figure out the number of monthly installments.
However, in general, banks, insurance companies Or many financial service providers have recorded this amount for their customers. Therefore, customers generally do not have to recalculate.
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