Percent Step loan type is used when geometric repayment series are required.
The resulting payment schedules will have payment series that are stepped by a
certain percentage amount.
Consider a 12 payment loan with initial payments of $100. If this loan is to be
stepped by 10% every 2 payments, the repayment schedule will be as follows:
Here, the Number of Steps is 5 and the Payments per Step is 2.
100 100 110 110 121 121 133.10 133.10 146.41 146.41 161.05 161.05
Initial First 10% Second 10% Third 10% Fourth 10% Fifth 10%
payments step step step step step
The following example illustrates the percent step series.
Percent Step - EXAMPLE |
Betty Brownie’s Bake Shop needs to purchase a second $19,500.00 oven because her business is doing better than anticipated. Since she expects her income to increase for at least 2 years, she wants to finance the purchase with a 2 year loan that keeps pace with her growing business. A local bank provides her with a 5.5% per month, stepped payment loan, at an interest rate of 14.75% per annum compounded monthly. She takes out the loan on November 16, 2011 and her first payment is due on December 1, 2011. |
Solve The monthly payment amount.
NOTE: Before you enter the data, you will need to set the Loan Type to Percent Step.
Your filled out form should look like this:
Note: The Number of Steps is set to 23. This is because there are 24 months in 2 years. The payments are going to be stepped every month as indicated by
the Every field of 1. But the first month will not be stepped. This leaves only the next 23 months to be stepped.
If the whole schedule is to be stepped, as in this case, you can set the Make field to any value greater than or equal to the last step (23 or greater for this
example).
The Payment for the first month will be $488.02. After with each monthly payment increases by 5.5%.
Goto: Graduated Payment