Personal credit: how to read a depreciation table?
It is a document which summarizes all the payments to be made to settle a private loan. Each line represents a date by which the borrower must make a payment. Thus, the amortization table will include for example 12 lines (12 months) in the case of a credit reimbursed over 1 year, and 60 lines (60 months) in the case of a credit reimbursed over 5 years.
What elements are indicated?
Each line of the document is subdivided into several columns according to the information that one wishes to include. As a general rule, an amortization table includes at least, for each line:
- The monthly number, or payment date: which indicates which monthly payment the line refers to. The first line corresponds to the date of the first payment to be made, and the last line to the date of the last payment.
- The monthly payment: it is simply the amount of the invoice to be paid.
- Amortization: this is the amount used to repay the loan.
- Interest: interest paid monthly.
- The balance: amount remaining to be paid so that the loan is fully amortized.
Amortization, interest, monthly payments
One of the fundamental elements to understand in an amortization table is that the monthly payment paid by the borrower includes on the one hand the amortization, and on the other hand the interest paid. However, if the monthly payment is fixed for the entire duration of the repayment, the parts dedicated to amortization and payment of interest vary over time. For example, a credit of 10,000 USD over 12 months with a rate of 8.9%.
- The fixed monthly payment is 872.45 USD / month.
- For the 1st month, the amortization will be 801.16 USD, and the interest paid will be 71.30 USD. The total of the invoice thus returns well to 872.45 USD.
- The 6th month, the amortization will be 824.25 USD, and the interest paid 48.21 USD. The total invoice remains therefore USD 872.45.
Overall, the interest paid by the borrower is higher at the start of the repayment than at the end of the repayment.
Credit balance and prepayment
The balance to be paid corresponds to the total amount of the credit, from which the depreciation already made is deducted. This is the amount “that remains to be reimbursed”. Knowing the balance that remains to be paid is particularly useful if the borrower wishes to make an early repayment. At any time, the borrower can indeed decide to “settle” his credit: he pays all the invoices that he still has to pay. Interest paid in excess will then be returned to him, less any deductions for early repayment charges.
How to get your amortization schedule?
As a general rule, it is always possible to request this document (or the equivalent) from the bank where the loan was made. Be careful though, because this service can sometimes be billed up to 200 USD depending on the bank! Certain intermediaries, however, provide, at the conclusion of the contract, a tailor-made amortization schedule to each client. At Multicredit, we attach this document to each contract at no cost.