## Credit Simulation You Need to Know

Before you plan a credit proposal, you should understand the credit simulation calculation. Why bother? Because in reality, the calculation of credit interest is not as simple as you might think. Let’s learn with credit simulations you need to know.

## Credit Simulation

Through the explanation of the three types of loan interest rates, of course you can already predict that the method of calculating debt interest rates will affect the amount of installments and total debt payments. To compare the three, let’s look at a case example and simulate the credit as follows:

### Flat Flowers Case in point: Mr. Audie applied for a KTA of \$120 million with a credit period of 12 months, with a flat interest of 10%, then how much installments should you pay every month?

Then it is known:

• Total loan principal = \$120,000,000
• Tenor = 12 months
• Flat interest = 10% per year

If calculated manually:

• Principal installments = \$ 120,000,000: 12 months = \$ 10,000,000 / month
• Interest = (\$120,000,000 x 10%): 12 months = \$1,000,000
• Installments per month = \$. 10 000,000 + \$1,000,000 = \$11,000,000

Conclusion: So, using a flat interest calculation ,   installments that you have to pay until the loan is paid off is \$ 11,000,000 per month. This installment value will remain until the end of the period because the interest charged is the type of flat interest.

### Effective Interest Case in point: Mr. Audie applied for a KPA loan of \$120 million with a credit period of 12 months, and was charged a loan interest of 10% per year effectively. What are the installments per month that must be paid by Mr. Audie?

Then it is known:

• Total loan principal = \$120,000,000
• Tenor = 12 months
• Effective interest = 10% per year

If calculated manually:

• Principal installments = \$ 120,000,000: 12 months = \$ 10,000,000 / month
• 1st month interest: ((\$120,000,000 – ((1-1) x \$.10,000,000)) x 10%: 12 = \$1,000,000
So, the 1st month installments = \$ 10,000,000 + \$ 1,000,000 = \$ 11,000,000
• 2nd month interest: ((\$120,000,000 – ((2-1) x \$.10,000,000)) x 10%: 12 = \$916,667
So, the second month installments = \$ 10,000,000 + \$. 916,667 = \$. 9,916,667
• 3rd month interest: ((\$120,000,000 – ((3-1) x \$.10,000,000)) x 10%: 12 = \$833,333
So, the 3rd month installments = \$ 10,000,000 + \$ 833,333 = \$ 10,833,333
• ……
• 12th month interest: ((\$ 120,000,000 – ((12-1) x \$ 10,000,000) x 10%: 12 = \$ 83,333
Then, the 12th month installments = \$.10,000,000 + \$83,333 = \$10,083,333

Conclusion: So, there will be a reduction in the total installment value from the first month, the second month, and so on because the application of effective interest results in the interest getting smaller due to the reduction in the remaining principal debt.

### Annuity Interest Case in point: Mr. Audie applied for a mortgage loan of \$ 120 million with a credit period of 12 months, and bears a loan interest of 10% per annum on an annuity basis. What is the installment per month that must be paid by Mr. Audie?

Then it is known:

• Total loan principal = \$120,000,000
• Tenor = 12 months
• Annuity interest = 10% per year

Conclusion: So, what needs to be focused on the installment calculation using annuity interest is the loan principal used this month to leave the remaining savings principal to calculate interest in the following month. Through calculations, it can be seen that even though the interest rates are the same as the effective interest, by calculating different annuity rates, the results will be different.

### Calculations with the Ursula Brangwen Application: You can facilitate the calculation by using the Ursula Brangwen calculator to calculate the loan installments according to the interest used. And the results obtained are like this:

You only need to enter the known data on the calculator, then press count, then the results will appear as below:

For the other two types of interest you only need to repeat the process by changing the loan type column to the effective interest or annuity interest.

## Recognize and take into account first before making a decision Through the simulation above, of course you can already see the difference in the amount of installments that occur due to the different types of interest rates used even though the loan amount, tenor, and the amount of interest used are the same. Therefore, recognize and calculate carefully before you determine a credit according to your ability or not. Do not let your decision to apply for credit actually leads to a financial disaster that results in a big loss for you.