Amortized Loan Schedule

An amortised loan schedule can be set up on a case-by case basis during offer drafting. The idea of an amortised loan in Sapling follows the standard definition of an amortised loan, purpose of which is to divide the repayments into equal instalments for ease of planning and the convenience of the borrower.

Under the amortised schedule, instalment amount is calculated in the following manner:

$$instalmentAmount = loanPrincipal * \frac{i * (1+i)^n}{(1+i)^n-1}$$

Where i is the interest rate for the duration of a single instalment, and n is the number of instalments. Note that this calculation is not in the contracts, it is only used on the web interface to calculate a loan schedule. The installment amount is recorded in the smart contracts.

The standard formula above calculates an instalment amount that represents a larger interest and smaller principal components on initial repayments, which gradually switch places with the last repayment representing all outstanding principal and smaller remaining interest.

Early payments on amortised loans reduce the outstanding principal, thus resulting in less overall interest payable by the borrower. Although less total interest will be paid for the loans that are paid early, either in part or in full, an early return of the principal results in liquid pool capital that can be put into a new loan.

Any overpayment of interest is used to pay off on the principal. Any late overpayment of interest time firstly pays late interest in daily increments, then pays off principle. Interest is paid off in daily increments. As interest is calculated daily, sub one day interest payments are not accepted.

Late payments on amortised loans adversely affect the interest payable by the borrower as any missed payments, either in part or full, mean there will be an overdue part of the principal which will continue incurring interest. A borrower who has any late payments may find that by the end of the schedule the loan is not closed, as part of the instalments have covered the interest accumulated on the overdue principal. Borrower can get back on schedule after a late payment, by increasing the next payment amount by the overdue part of the principal and the interest accumulated by it.