# Credit calculator. Manual.

Contents

• Additional (hidden) payments

• Important results and effective credit rates

The application workspace consists of three parts.

**First **- it is the «Basic data and results» tab with the initial data, which the user must enter to retrieve all the calculated values. In this tab important results are also given.

The initial data must be entered in the three internal tabs: «Basic output data», «Related payments» and «Additional hidden payments».

Some important result will be automatically recalculated when the source data is entered.

If you want to recalculate the effective credit rates you have to use the «Recalculate» button.

The **second** part of the work area is the «Cash flow calculation» tab, which contains a table with appropriate values. It is automatically updated when you change the primary data.

The **third** part - is «Cash flow graph» - the same table, as in the «Cash flow calculation», but in the graphical representation. Charts are automatically updated when you change the source data.

All the source and the resulting fields are described in the section «Structure», namely their purpose and possible variants for data entry. Algorithms and calculation dependencies for values, which are used in calculations, are shown and described in the section «Functional».

«Basic data and results» is intended to input the initial data and output the main resulting information about credit calculation.

Main output data consist of:

**«Bank name»** - bank, which will be carrying out loan. In this filed you should enter name of the bank. This field is required, as it will partially generalize the information about which banks offer the best credit terms, as will be noted in other sections of the site.

**«Credit currency»** - currency for taking loan. In this currency attendant and additional payments will be calculated, as well as the important results, effective lending rates and all cash flows.

You have to select a currency of crediting from the drop-down list, you may choose among U.S. dollar (USD), euro (EUR) and Ukrainian hryvnia (UAH) as a credit currency. Nevertheless the choice of currency does not affect the parameters of calculation model, so if you decide to take credit in other exotic currencies, then just do not select any currency, or select any name, bearing in mind that the results will be calculated in the currency which you really are taking the credit in.

**«Cost of credit object»** - the cost of the object acquisition of which impelled to take a loan.

In this field enter the value of an object, which you are buying in credit. Please enter its full value, regardless of what part of the cost will be covered by the credit.

**«Initial payment»** - the initial payment of cost of object in credit which you have to reimburse when purchasing.

It could be either a fix amount or percentage of:

**«the cost of object in credit» **- the interest calculation is based on the full cost of object in ;** **

**«initial loan amount» **- the interest is calsulated on a basis of the difference of the cost of object in credit and a fixed amount of initial payment.

If the bank requires that the part of funds for the object was made with your own money, not a loan, and its amount is known, so enter its absolute value in the field «initial payment: a fixed amount». If the bank requires that your own contribution will be a certain percentage of the cost, then write 0 in this field, and put the required percentage of your contribution in the field «initial payment: the percentage of ...». From the drop-down list you can choose a basis for your payment percentage calculation.

**«Loan amount»** - a loan amount in the bank, which is calculated as a difference between credit object amount and initial payment.

This is the amount you need to borrow from a bank if you pay the part of the loan cost by yourself. This is the amount the bank will give you in credit if all other related charges will be paid by you, with your own funds.

**«Interest rate»** - a percent of your credit in a bank which you are going to pay him annually.

In this field you should put an interest of the credit, which takes for credit according to the bank notification. Also it is often called the nominal interest rate, or NAR.

**«Loan term»** - the term for which the credit will be taken in the bank (in years).

In this field you should put a date (in years) for which you are taking the credit. The maximum value you can enter here - 40 years.

**«Frequency of loan payments»** - how frequently the payment will be made to repay the loan. To the list of possible options for the payments frequency with the proper values belong the following:

«once a year», «every six month», «quarterly», «monthly», «every two weeks», «every ten days», «weekly».

Select the frequency of your loan repayment. The most often used in Ukraine is the monthly payment of interest and principal amount on credit.

**«Loan repayment scheme»** - the loan repayment will be made by this scheme. There are two possible forms:

**«annuity» **- this scheme involves the repayment of the loan body and the charged interest in equal amounts each month during all the loan term;

**«actuarial» **- the scheme is that the credit interest volume is calculated on a basis of the balance of the loan, that is the payment is reduced all the time because of the total amount of credit is reduced, and thus the interest volume also is.

You can choose between actuarial and annuity loan repayment schemes. Banks currently provide credits to customers, offering both the first and the second scheme. With annuity repayment scheme, you will regularly pay to the bank the same amount, the main part of which will cover for the loan interest and the rest will go to main amount (body) of debt. Thus, in the beginning the major part of your payment goes to cover the credit interest and only a small part will repay the main amount of debt. If you are using this scheme, the situation will change to the opposite at the end of the loan term. With actuarial scheme, also known as «interest in the balance», there is a repayment of the main credit body in equal parts, and the interest is accrued on the actual balance of the debt. The size of repayments on this loan is erratic, they are large at the beginning and decrease in subsequent periods. Initial payments for discharging by the following scheme predominantly higher than by annuity scheme, but then become even less than annuity. That is why people with limited solvency sometimes cannot afford to repay the loan by actuarial scheme, but can afford annuity. However, it should be remembered that the total overpayment of returned loan funds is higher at annuity scheme, while the effective (real) financial rate on credit is mostly higher in actuarial scheme. However, the client makes the final choice, and it depends not only on the financial status of the client, but also on a desire of bank to credit him using one or another scheme.

**«Number of days in a month»** - duration of the credit, not a calendar, month (in days). Possible variants are «30» and «31» days. This value affects the calculation of interest quantities for a charge period, i.e., the more days in a month, the higher percentage for a charge period.

Watch carefully for the credit agreement terms, there may be a clause that will allow you to be charged monthly interests in any month of the year as if this month had 31 days regardless of the actual number of calendar days in that month. This raises the actual interest rate, at which you took the loan in the bank. If there is no such clause, then select 30 days.

**«Number of days in a year»** - duration of a credit year (in days). This value affects the calculation of interest for a charge period - the more days are in a credit year, the lower resulting interest rates are.

Please also pay attention to a period (in days) which the bank considers as a one year according to the terms of the contract. For example, by principle «the year is mine – I set as many days as I want» the bank can specify in the contract that the current year for the credit is 360 days, not 365.This allows to divide the annual interest on 360 days, not on 365, and for each day you will be chaged higher interest, and for the real 365 day calendar year it will be higher, which will raise the real interest rate. So, if this item is present in your credit contract, choose 360 from the drop-down list, otherwise select 365.

**«Starting day of a loan»** - the date when the loan will be made.

In order to get credit you must pay a number of payments concerning insurance, notarization, etc.

In this part of application you may enter an information about related payments, which should be made to the other institutions when processing a credit agreement. These payments (perhaps except from a part of insurance premiums) do not increase profit, which is received by bank as a result of credit, but they undoubtedly increase the credit cost for those who take it.

**«Notarization agreement fee»** - the fee you must pay for the notarization of credit agreement between the bank and the borrower. It can be either a fixed amount or percentage of:

**«the cost of credit object»** - the interest accrued from the cost of credit object ;

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment.

**«Life insurance related to crediting»** - a fee, which is set for life insurance of the borrower. Similarly to the previous, it can be either a fixed amount or percentage of:

**«the cost of credit object»** - the interest accrued from the cost of credit object ;

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment.

Taking into account that during the credit agreement execution banks may require to insure the life of someone who takes a credit, the fields for such payments are also provided.

**«Insurance of credit object»** - payment that goes for insurance of credit object. It can be either a fixed amount or a percentage of:

**«the cost of credit object»** - the interest accrued from the cost of credit object ;

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment.

Bank will demand to insure a credit object and you will pay every year the insurance premium.

**«Other related payments for crediting»** - other additional related payments that may occur in case of crediting and that is not subjected to the above categories. It can be either a fixed amount or percentage of:

**«the cost of credit object»** - the interest accrued from the cost of credit object ;

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment.

According to the already listed principle, in these fields you can put other contingent related payments. The insertion method is similar to the listed above payments.

**«Does the related charges are consider in the body of credit?»** - after all pre-specified payments are made, the following situation can occure: the customer of the bank possess enough money for an initial deposit to purchase a credit object, but not enough money for all related charges. If the bank agrees to give a greater amount on the credit, so that some of it will cover these additional payments, then select in drop-down list «yes». But if you have enough money for the related charges, then select «no».

You have to pay a number of fees when a credit is executed or discharged.

**«Commission for getting a credit»** - flat fee that is charged for obtaining a credit by borrower. It can be either a fixed amount or percentage of:

**«the cost of credit object»** - the interest accrued from the cost of credit object;

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment.

Banks almost always require specified initial payments from customer which are considered as a payment for issuing a credit. The payment may be scpecified as a fixed one or in terms of percentage of the credit amount or even the credit object cost. Such payments actually reduce the credit balance, but since the interest is charged on the full credit amount, which is reflected in the credit agreement, it actually raises the effective interest rate under which the bank issues a credit. If the commission indicated in percentage, then you will find out from which value these interest are calculated.

**«Commission for cash lending»** - a one-time fee for cash lending. Similarly to the previous it can be both a fixed amount and percentage of:

**«the cost of credit object»** - the interest accrued from the cost of credit object;

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment.

Often, after signing the credit agreement, near the cashier’s office where we get a credit, we become allegedly overwhelmed by additional charges for receiving cash. Sometimes they demand a substantial amount of money in the form of exchange differences, giving you the money in foreign currency according to the bank's domestic exchange rate, but calculating the credit by the official course of the national bank. They order you to compensate the difference between these courses, which is an additional hidden fee.

**«Periodic commission for repayment»** - a periodic commission, which is paid when the borrower repaying the credit. It can be either a fixed amount or percentage of:

**«initial loan amount»** - the interest accrued from the difference between the cost of credit object and a fixed amount of initial payment;

**«balance debt»** - the interest accrued from the principal amount of debt;

**«redemption payment values»** - the interest accrued from the redemption value of the borrower’s contribution.

Another way to raise the real interest rate significantly, which the customer will have to pay on the credit, is to establish commissions, which are reqired to pay each time a borrower makes his regular installments to repay the credit.

**«Commission for paying cash for redemption»** - a commission, which is paid by borrower every time the cash goes to repay the credit. It can be either a fixed amount or percentage of:

**«balance debt»** - the interest accrued from the principal amount of debt;

**«redemption payment values»** - the interest accrued from the redemption value of the borrower’s contribution.

*Important results and effective credit rates*

**«Number of payments to the full redemption»** - a number of installments that must pay a borrower to repay a credit fully.

**«Date of full repayment of the credit»** - the date of the last payment by borrower, after this the credit is considered to be discharged completely.

**«Number of credit days»** - the duration of the credit agreement (in days).

**«Interest for one period»** - an interest for the one loan repayment period.

**«Object cost»** - the cost of credit object .

**«Finance on credit»** - the loan amount.

**«Credit agreement amount»** - the amount, which includes all related charges and certain commissions, and actually the amount of loan.

**«Fee for getting a loan»** - the amount which is the full commission for getting a loan, including both a fixed amount and a percentage share.

**«Fee for receiving a cash»** - the amount which is the full commission for receiving a cash in case of crediting, including both a fixed amount and a percentage share.

**«Notarization fee»** - the amount which is the full fee for notarization of credit agreements, including both a fixed amount and a percentage share.

**«Internal rate of return for the period»** - the discount coefficient, in which (over the period) the current present value of the future incoming cash flow on the investment equals to the expenses on these investments.

**«Accuracy of IRR calculation»** - a ratio that specifies the pecision at which the calculation of IRR is stopped. It is necessary because the calculations are made using the iterative approach.

**«Effective credit rate»** è **«Client's effective credit rate»** - two major fields of the system. Considering all the related charges, they show a real interest rate under which you took the credit. This percentage is called the efficient annual rate (EAR). Professional financiers are trying to choose the credit that will require a smaller effective rate ceteris paribus. EAR of the client shows the effective rate when taking into account all related fees, and EAR of the bank considers additional (hidden) bank charges, but does not include related payments to third individuals because these payments are earnings of those third individuals, not the bank. These indices are calculated on the basis of the function of internal return rate (IRR - internal return rate) and lead to annual overcharging.

**«Increase in the object cost»** - a value that shows the increase in the object cost after the object was taken in redit.

It is the total amount which you have to repay to the bank for the entire crediting period. Usually non-financiers look at it as a criteria when choosing a credit, but this value does not include the cost of money over time.

**«****In percent equivalent****»**** **– it is how much interest you will have to reimburse in addition to the amount taken on credit for the whole crediting period.

**«First payment value»** - amount of money for the loan repayment, which must be paid firstly after its receipt. This information is important when planning a personal budget and deciding whether we can afford the loan or not. It is consist of

**«main amount»** - this is the first payment amount that will be directed to the partial repayment of the main amount of debt (the body of credit).

**«interest»** -Interest for the charging period. This amount goes to repay the interest accrued on credit by bank for the current period.

**«additional fees»** - the amount that goes to additional fees - for repayment and for deposit.

"Cash flow calculation" table is actually the distribution of money which we receive and pay back accounting all related payments.This distribution is calculated automatically and used to determine the amounts of overpayment on the credit and the real effective rate of interest.

It consist of following columns:

**«Period #»** - number of settlement period one after another;;

**«Date»** - date of loan taking;

**«Balance of main loan amount»** - loan amount which is left for the beginning of payment period;

**«Discharge payment value»** - an amount which you have to pay for givenpayment period;

**«Interest»** - interest for given payment period;

**«Repayment of main amount»** - main amount of credit for given payment period;

**«Additional payments For discharge »** - periodic commission for loan repayment;

**«Additional payments For paying cash»** - commission for paying cash when discharging;

**«Life insurance»** - periodic payment for borrower's life insurance;

**«Insurance of credit object»** - periodic payment for credit object insurance;

**«Other payments»** - other additional payments when crediting;

**«Cash flow to the bank»** - amount of additional payments and payment discharge value;

**«Cash flow to the client»** - amount of additional payments, insurance payments, other payments and payment discharge value;

**«PV ($1)»** - the present value of 1 currency unit selected from the future period, as for today. It is calculated having discounting 1 monetary unit on the number of periods, taking into consideration the interest rate for the pay period;

**«Reduced cash flow for the bank»** - cash flow for the bank, discounting on PV($1) value;

**«Reduced cash flow for the client»** - cash flow for the client, discounting on PV($1) value;

The cash flow graph reflects all amounts which are given in the table "Cash flow calculation" according to payment dates.