Mortgage Loan
A mortgage loan is financing provided by a bank or credit organization for the purchase of a property (house, apartment, land). It is usually an amortizable loan, meaning you repay a part of the borrowed capital and the interest each month.
Example of Mortgage Loan Amortization Calculation
Let's take an example of a €100,000 mortgage loan over a period of 3 years with an interest rate of 3%:
- Loan Amount: €100,000
- Loan Duration: 3 years (36 months)
- Interest Rate: 3%
- Monthly Payment: €2,822.41
Monthly Payment Calculation:
M = (P * r * (1 + r)^n) / ((1 + r)^n - 1)
- M = Monthly Payment
- P = Loan Amount
- r = Monthly Interest Rate (annual rate / 12)
- n = Number of Monthly Payments (loan duration in months)
Substituting the values into the formula:
M = (100,000 * 0.0025 * (1 + 0.0025)^36) / ((1 + 0.0025)^36 - 1) ≈ €2,822.41
Explanation:
- Monthly Payment: The amount you need to repay each month to the bank. In this example, it is €2,822.41.
- Interest: Each month, part of your payment goes toward paying interest on the borrowed capital. The amount of interest decreases over time as the remaining capital decreases.
- Amortization: The remaining part of your payment goes toward reducing the borrowed capital, i.e., decreasing the amount still owed to the bank.
Consumer Loan
A consumer loan is financing provided by a bank or credit organization to finance personal goods or services (car, furniture, renovations, etc.). It is usually a non-amortizing loan, meaning you repay the borrowed capital in a single payment at the end of the term, along with the due interest.
Example of Consumer Loan Calculation
Let's take an example of a €20,000 consumer loan over a period of 3 years with an interest rate of 3%:
- Loan Amount: €20,000
- Loan Duration: 3 years (36 months)
- Interest Rate: 3%
- Total Credit Cost: €22,000 (interest of €2,000)
Total Credit Cost Calculation:
Total Cost = Loan Amount * (1 + Interest Rate * Loan Duration)
Substituting the values into the formula:
Total Cost = 20,000 * (1 + 0.03 * 3) = 20,000 * 1.09 ≈ €22,000
Explanation:
- Total Credit Cost: The sum of the loan amount borrowed and the interest you will pay. In this example, the total cost is €22,000.
- Interest: The cost you pay for borrowing money. It is calculated on the amount borrowed and the loan term. In this example, the interest is €2,000.
Business Credit
A business credit is financing provided by a bank or lending organization to a company to help it achieve its projects or meet its cash flow needs. This type of credit can be used to finance various investments, such as:
- Purchase of equipment or machinery
- Construction or renovation of premises
- Development of products or services
- Financing working capital needs
- Acquisition of another company
Example of Business Credit Amortization Calculation
Let's take an example of a business that wants to borrow €100,000 over a period of 3 years with an interest rate of 3%:
- Loan Amount: €100,000
- Loan Duration: 3 years (36 months)
- Interest Rate: 3%
- Monthly Repayment: €2,920.73
Monthly Repayment Calculation:
Monthly Payment = (Loan Amount * Interest Rate) / (1 - (1 + Interest Rate)^(-Duration))
Substituting the values into the formula:
Monthly Payment = (100,000 * 0.03) / (1 - (1 + 0.03)^(-3)) ≈ €2,920.73
Amortization Table:
A table of amortization breaks down the repayment of a loan month by month. It shows the amount of capital repaid, the amount of interest paid, and the remaining balance at each installment.
| Month | Capital Repaid | Interest Paid | Remaining Balance |
|---|---|---|---|
| 1 | €2,777.78 | €142.95 | €97,222.22 |
| 2 | €2,777.78 | €141.94 | €94,444.44 |
| 3 | €2,777.78 | €140.93 | €91,666.66 |
| 36 | €2,920.73 | €0.00 | €0.00 |
Annual Percentage Rate (APR): APR is an indicator that allows you to compare different loans by taking into account all associated costs, such as processing fees, insurance, etc. It is important to compare APRs of different loans before making your choice.
APR Calculation Example: Suppose the €100,000 loan comes with application fees of €1,000 and insurance of €2,000. The APR can be calculated using the following formula:
APR = (Total Credit Cost / Loan Amount) x 100
Substituting the values into the formula:
APR = ((100,000 + 1,000 + 2,000) / 100,000) x 100 ≈ 3.10%
Conclusion: Business credits can be a valuable tool for businesses looking to finance their growth or address their cash flow needs. It is important to compare different credit offers and choose the one that best meets the company's needs. It is also important to understand the terms of the credit, including the interest rate, repayment term, associated fees, and APR.