A Loan Payment Model with Rhythmic Skips

A Loan Payment Model with Rhythmic Skips

Abdullah, Eroglu

Repayments of loans granted by banks to customers are usually in equal installments. The general formulae of the amount of financial installment, the number of installment, the interest rate of installments, etc. could be derived as considering the sum of present value of repayments made by the customer (installments) to be equal to the present value of the loan. Presenting the different options instead of only fixed installments to customers for repayments of loan installments is very important in terms of reaching more customers. Customers could have some difficulties to pay the loan due to the increased costs in some periods. Therefore, repayments could not be done in these periods. This situation was addressed by Formato (1992) first time and it was called as skip loan payment model. Formato's (1992) model is improved by Moon as a repayment installments model in a geometric-gradient series. Eroglu and Karaoz (2002) extended Formato's result to the case that periodic payments occur in a linear-gradient series. In this study, general formulae are derived for loan payment models including rhythmic skips with split geometric constant and alternating installments instead of random skips with geometric constant and alternating installments. Examples of the developed model are provided for better understanding and for future research areas. Since prospective customers of financing institutions demand more alternatives for payment plans for their loans, financing institutions need different installment plans. Therefore, it is expected that one of those alternatives would be in this study. Keywords: Loan payment, Rhythmic skips, Split geometric constant, Installments, Formato

Conference or Workshop Item
PeerReviewed

2012-05-31

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