Loan Question

[Matthew Vanecek]

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On Wed, 2002-12-04 at 22:59, Jochen De Smet wrote:
> I'm having more or less the same problem. The difference is
> that i booked the liability in two steps. I entered a transfer
> from the liability account to my bank account for the principal
> and a transfer from the liability account to an expense account
> for the interest.
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> So when i make a payment i make a transfer from my bank account
> into my liability account.
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> The result of this zeroes out nicely when the whole loan will be
> paid: the liability will be zero and the expense account will
> correctly show the amount of interest paid.
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> The problem i'm having is that this puts the complete interest
> amount as expense right from the start. This seriously skews
> all reports wrt expenses. I haven't found a way yet to both have
> the liability show the correct amount up till now for the
> "interest paid" expense.
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> J.

I have several loans (student, auto, mortgage, personal).  For most of
them, I have the principal in a liability account, and interest in an
expense account.  Each monthly payment is the same--all that changes is
the split between interest and principal.  When I get my statement, I
adjust the interest/principal portions of the payment accordingly.  An
amortization wizard that did this automatically would be helpful, but
also incredibly complicated (e.g., is your year 360 days, or 365?  How
often is calculated? Is it figured at the beginning of a period, or end
of a period? and many more...).  So, I just go by my statements each
month.

One exception is a Rule of 78s loan.  Interest is calculated as part of
the liability from the get-go.  Right up front, you're responsible for
the whole amount of principal+interest.  Early payoffs usually generate
a "rebate" of a portion of the unpaid interest, but extra payments are
usually inadvisable.  Anyhow, the interest expense will be static
regardless of date of payment--and it's easily figured out in a
spreadsheet.  You want to avoid this type of loan, thought--great for
banks, sucks for consumers.  In this type of loan, you can record the
principal, and record the interest as a monthly expense, or you record
the principal + interest as a liability (which is the actual case).

Unless you have the exact formula your loan administrator uses for
interest calculations, it's probably best to use the statements, and
adjust after the fact.  However, I wouldn't record the interest as an
up-front expense.  I only pay interest on a monthly basis; therefore, I
only record it on a monthly basis.



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Matthew Vanecek
perl -e 'print $i=3Dpack(c5,(41*2),sqrt(7056),(unpack(c,H)-2),oct(115),10);'
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*****
For 93 million miles, there is nothing between the sun and my shadow except=
 me.
I'm always getting in the way of something...

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