Loan Repayment schedule definition

Writer and editor - Bryan Robinson | Updated on 2023-01-11

Introduction

A repayment schedule is a timetable that indicates when loan payments are due. Typically, a repayment schedule will include the frequency of payments (weekly, bi-weekly, monthly, etc.), as well as the amount due each period. The repayment schedule may also specify the method by which payments are to be made (electronic transfer, check, money order, etc.). The schedule may be set up by the lender, or it may be worked out between the borrower and the lender.

What is a repayment schedule?

A repayment schedule outlines when and how a borrower will repay a loan. This schedule is typically set up at the time the loan is originated and will be incorporated into the terms of the loan agreement. The repayment schedule will outline the amount of each payment, the date the payment is due, and any other pertinent information related to the repayment of the loan.

Types of repayment schedules

Loan repayment schedules can vary, but most follow a similar pattern. Most repayment schedules have regular, periodic payments that are due at specific intervals—usually monthly. Some schedules may require payments every two weeks, while others may have quarterly or annual payments.

The term “amortization” refers to the process of spreading out loan repayments over the life of the loan. An amortized loan has equal periodic payments that reduce the principal balance of the loan and interest charges over time. A typical mortgage is an example of an amortized loan.

All loans are not amortized equally, however. Some loans, such as balloon loans, may have large periodic payments (known as “balloon payments”) that are due at specific intervals. These large periodic payments are used to pay down the principal balance of the loan. Balloon loans are often used to finance short-term investments, such as real estate projects.

Other loans, such as interest-only loans, may have periodic payments that only cover the interest charges of the loan. These types of loans do not reduce the principal balance of the loan and can become difficult to repay if not managed carefully. Interest-only loans are often used to finance investments, such as commercial real estate projects.

Advantages of using a repayment schedule

Advantages of using a repayment schedule include:

  • Helping the borrower to budget for the loan repayments
  • Ensuring the borrower repays the loan in full over the agreed period of time
  • Giving the borrower peace of mind that they will not miss any repayments


See also article on Prepayment penalty.

How to create a repayment schedule?

As stated earlier, a repayment schedule is a table that shows how much of a borrower’s loan principal and interest is repaid at each payment interval. The schedule also shows the remaining balance after each payment is made.

Using a repayment schedule template

A repayment schedule template can help you create a repayment schedule that is tailored to your unique situation. This can be helpful if you have multiple loans with different interest rates, terms, and minimum payments.

To use a repayment schedule template, simply enter your loan information into the template. This includes the loan amount, interest rate, term, and minimum payment. The template will then calculate your monthly payment and create a repayment schedule.

Manually creating a repayment schedule

Assuming that you would like to calculate the schedule yourself, you can use the following method:

  1. Start by calculating the periodic payment amount. This is done by dividing the total loan amount by the number of payments you will make. For example, if you are borrowing $10,000 at a 5% interest rate for five years (60 months), your periodic payment would be $200 ((10000 * 0.05) / 12).
  2. Next, create a schedule using a spreadsheet program like Microsoft Excel or Google Sheets. The first column should list each payment period (months 1 through 60 in our example), and the second column should list the corresponding payment amount ($200 in our example).
  3. Now, calculate the interest for each period. To do this, multiply the loan’s annual interest rate by the remaining balance at the start of each period. So, for our example loan with a 5% annual interest rate, the first period’s interest would be $10 ((0.05 * 10000) / 12).
  4. Add the interest to the payment amount to get your total payment for each period. In our example, this would be $210 for the first period ((200 + 10) / 12).
  5. Finally, subtract your total payment from the remaining balance to get your new balance after each period. So, after one payment of $210, your new balance would be $9990 ((10000 – 210) / 12).

Conclusion

A repayment schedule is a timetable that outlines when and how a borrower will repay a loan. A repayment schedule is usually set up at the time the loan is made and may be adjustable, depending on the type of loan. The repayment schedule will outline how much money is owed each month, when that payment is due, and any additional fees or charges that may be assessed.

Bryan Robinson

Bryan Robinson
Writer and editor


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