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What is a periodic loan payment?
Periodic loan payments refer to payments made over time to pay off debt. They differ from lump-sum costs in that these require payments made periodically until all debt has been cleared off – like with mortgage or car loans, which require regular installments (such as monthly) until paid in full – an amortization schedule shows these installments.
A promissory note is a legal document outlining the terms of a loan agreement, so a borrower should carefully examine it to ensure all times are understood. Payment schedules might call for equal monthly installments or shorter ones with one “balloon” payment at the end. Either way, signers of periodic payment notes must understand its implications before signing it.
How do I record a periodic loan payment?
Your business may need to record periodic loan payments that include both interest expense and reduction of principal balance. When recording these payments, it is crucial to first record interest expense as an expense before recording the remaining portion as a loan balance reduction or decrease in liability accounts such as Loan Payable or Notes Payable. In certain instances, however, payments may be unamortized at the end of the loan term in cash and recorded as such in your cash account.
What is a periodic loan payment schedule?
Loan payment schedules provide an efficient means of keeping track of principal and interest owed on loans. They can be calculated using this formula: P = A(n, i)/APR where “n” refers to loan duration in years while “i” stands for nominal annual interest rate, which will be compounded each payment period.
Create an amortization schedule using this calculation by recording every payment made towards your loan – known as amortization – using this table, known as an amortization schedule. This table includes payments made until the end of your loan term and shows both principal and interest payments at each period until the debt is completely cleared off. While amortization schedules are most often used with mortgage loans, they can also be used to record debt payments across any obligation; each monthly amortization payment reduces interest owed while increasing principal payments monthly.