Italian method loan

In this modality, the loan is amortized in aliquot payments in each period, and the interest is settled by the corresponding outstanding capital, so that the successive installments are decreasing as the interest, period by period, is lower.

It is a real contract as the payment is an essential element 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 amortizations within the agreed periods.
• Paying the interests within the agreed periods, as well as the interests on arrears that can be generated by late payments

In the Italian method loan, the capital is amortized in aliquot payments every period, the interests of the outstanding capital of the period being paid off as well. For this reason, the successive instalments are in decline since the interests decrease in every period. Its formula is:

Being:
a: instalment of the period n
c: amount of the loan
t: number of periods
CVn: outstanding capital of the period n
i: per unit
dn: days of the period n
B: basis for the calculations (360 or 365 days)