The Rounding Up of the Scheduled Payments in FinCalc 4.0

Overview

The scheduled payment amounts calculated by the PV method are rounded up in FinCalc 4.0. Earlier, before 4.0 version of FinCalc, the scheduled payment amounts (EMIs) were rounded off to the nearest configured decimal number.

For example, let us say that the scheduled payment amount to be paid is $244.452. Earlier, using FinCalc 3.1, this value was rounded off to the nearest two decimal digit number and the new scheduled payment amount value after rounding was $244.45. Now, with the rounding up of the scheduled payment amount using FinCalc 4.0, the scheduled payment amount value of $244.452 is rounded up to $244.46.

The difference in the amount after rounding, also called as the Interest Rounding Error is adjusted or carried over to the next amount in the next cycle. The rounding occurs every cycle and the Interest Rounding Error is added to the next term's interest until the last loan term.

Because the scheduled payment amount (EMI) is rounded up, any modifications made in the last schedule result in the probability of the last schedule payment amount to be lesser than the remaining scheduled payment amounts (EMIs).

Example

Let us understand how the system calculates payment amount and interest using the rounding up of scheduled payment amount in FinCalc 4.0 with the help of the following example:

Let us create a loan with the following details and disburse it:

• Loan Amount = $51,000

• Interest Rate = 12%

• Terms = 12

• Payment Frequency = Monthly

• Contract Date = September 23, 2022

• Time Counting Method = Actual Days

The payment schedules get generated as soon as the loan becomes active from the day zero of the loan contract. The following table depicts the details of these schedules:

From the preceding table, we observe the following:

• Using FinCalc 4.0, the PV method of calculation calculates the EMI (payment amount) as $4,530.6234, and then the system rounds up this amount to $4,530.6300. It also rounds interest in each cycle to the nearest after adding the IRE to the calculated interest.

  Note:

  While scheduled payment amount is rounded up, the interest is rounded to the nearest in each cycle.

  For example, in the preceding table, let us look at the schedule with the due date August 23, 2023. In this schedule, you can see that:

  • The scheduled payment amount is rounded up to $4,530.630000.

  • The previous schedule's IRE, which is 0.004834703182, is added to the interest calculated for this schedule and then the total interest is rounded to the nearest. Thus, the Rounding of (Interest Calculated + IRE) = $90.960000.

• We also see that the scheduled payment amount of the last schedule (with Due Date as September, 23, 2023) is calculated and rounded up such that the Balance at the end of this schedule is calculated as zero. Thus, the scheduled payment amount is $4,530.550000.

  Note:

  In FinCalc 4.0, irrespective of the value of the two flags, Adjust Rounding in last Payment and Final Payment Differ (in Amortization Schedule), the last schedule's payment amount is still adjusted in order to make the closing balance zero. In earlier versions of FinCalc, whether or not the last schedule's payment amount is adjusted to make the final closing balance zero depended on the preceding two flags.

• The rounding of the interest to the nearest occurs every cycle and the IRE is added to the next term's interest until the last loan term.