French method loan
Constant rate French method loan
The amortization by the French method, progressive or classic, is characterized by the payment of overdue interest, that is to say, at the end of each payment, and payment of constant instalments in each period.
Interest decreases as loan periods pass and amortized capital increases in evey new period.
French method loan
In this system, capital is increasingly amortized, with interest rates decreasing as a proportion of the progressively lower capital, so that in each period the joint share of capital and interest is identical to that of the rest of the periods.
It is a real contract aspayment is essential for the contract to exist and, from that moment, obligations for the borrower are generated. Some of these obligations are:
• Paying all the formalization costs.
• Paying the fees for the operation.
• Making the capital repayments within the agreed periods.
• Paying the interests within the agreed periods, así as well as the interests on arrears that can be generated by late payments.
In the French method, the capital amortized increases and the interests decrease in each instalment since the outstanding capital is lower. This way, the amount made up of capital and interests is the same in every period. Its formula is:
Being:
*a: constant instalments
Co: amount of the loan
n: number of periods
i: interest rate