BANoKo SexrRlL No PtulPlxas

OFFICE OF THE DEPUTY GOVERNOR

SUPERVISION AND EXAMINATION SECTOR

MEMORANDUM NO. M-2011- O4O

To : AILBANKS

Subiea : Effective Interest Rate Calculation Models for All Types of Loans

Relative to the implementation of Circular No. 730 dated 20 July 2011 on updated
rules in implementing the Truth in Lending Act to enhance loan transaction transparency,
Effective Interest Rate (ElR) calculation models illustrative of common loan features are
presented herewith (Annexes A-E) for guidance. lt is understood, however, that an EIR
calculation model, founded on established principles of discounted cash flow analysis, for
a loan should be based on the actual features thereof. A bank shall be solely responsible
for the propriety and accuracy of its EIR calculation model. However, for purposes of
determining compliance with Circular No. 730, the BSP's determination of the
reasonableness and accuracy of an EIR calculation model prevails.

,ffi{
!{uty zott

Att.: A/S

A. Mabini St., Malate 1004 Manila, Philippines o Trunkline 1632152417O-Ll a URl:www.bsp.gov.ph o e-mail: bspmail@bsp.gov.ph
 ANNEXA

lllustration 1

EFFECTIVE ITTTEREST CALCULANON MODEL

FIXED EQUAT AMORNZANON CASE

AB c D G
I Loan Amount 120,000.00
2 Monthly Installment 11,001.50
3 Contractual Rate (Monthly) tSWa
4 Other Charges 3.OO%
5 No. of Monthly tnstallment 12
5
7 Installment Gross O$er ols
I Period Loan Prlncioal Intercst Charges Cash f,ows Balance
9 120,000.00
120,000.00
10 0 3,600.00 116,400.00 120,000.00
11 1 9,201.60 1,900.00 (11,001.50) L7O,798.4O
L2 2 9,339.62 1,561.99 (11,001.60) 101,458.79
13 3 9,479.72 1,521.99 (11,001.60) 91,979.06
t4 4 9,521.91 7,379.69 82,357.!5
{11,001.60)
t5 5 9,765.24 1,235.35 (11,001.60) 72,590.9L
15 6 9,972.74 1,089.95 (11,001.60) 62,679.77
t7 7 10,051.43 940-77 (11,m1.50) 52,676.74
18 8 74,212.35 789.25 (11,001.60) 42,404.39
19 9 10,365.53 536.O7 (11,001.501 32,038.86
z0 10 to,521.O2 480.58 (11,001.60) 27,517.85
2t tt 10,678.83 322.77 (1L,001.60) 10,839.01
22 t2 10,839.01 162.59 (11,001.60)
23 TOTAL 120,000.00 72,oL9.79 3,500.00

Monthly Installment PMT(C3,C5,-Cl)'r-1 11,001.60

(using Excel PMT FunAion)

Effective Annual lnterest Rate (ElR) =

(using Excel lRR Functlon)
(1+lRR(F10:F22!,!.,, - L
r@
Effective Monthly Interest Rate (MlR)
{using Excel tRR Funaion)
= IRR(FIO:F2Z)
l-Erml
 ANNEX B

lllustration 2

EFFECTIVE INTEREST CATCUTATION MODET

FIXED PRINCIPAL AMORTIZANON CASE

AB c D G
1 Loan Amount 120,000.00
2 Monthly Installment 10,ooo.oo
3 ContractualRate(Monthly) 7.5W6
4 OtherCharges 3.0096
5 No. of Monthly lnstallment 72
6
7 lnstallment Gross (}ther o/s
8 Perlod loan Prlncloal Inter€st Charses Cash florrs Balance
9 120,000.00 120,000.00
10 0 3,500.00 116,400.00 120,000.00
11 1 10,000.00 1,800.00 (11,800.00) 110,000.00
t2 2 10,000.00 1,650.00 (11,550.00) 100,000.00
13 3 10,000.00 1,500.00 {11,500.00) 90,000.00
t4 4 10,000.00 1,350.00 (11,350.00) 80,000.00
15 5 10,000.00 1,200.00 (11,200.00) 70,00o.0o
16 5 10,000.00 1,050.00 {11,050.00} 60,000.00
t7 7 10,000.m 900.00 (10,900.00) 50,000.m
18 8 10,000.00 750.00 (10,750.00) 40,0o0.m
19 9 10,000.00 600.00 (10,600.00) 30,000.00
20 10 10,000.00 450.00 (10,450.00) 20,000.00
21 11 10,000.00 300.00 (10,300.00) 10,000.00
22 L2 10,000.00 150.00 (10,150.00)
z3 TOTAT 120,000.00 11,700.00 3,600.00

Effective Annual Interest Rate (ElR) =

(using Excel IRR Funcrriol
(1+lRR(F10:F22ll" - 7
l_Er%l

Effective Monthly lnterest Rate (MlR)

(using Excel IRR Fundion)
= IRR(F10:F221 r----rrfi
 ANNEX C

lllustration 3

EFFECTIVE INTEREST CALCUTATION MODET

FrxED EQUALAMORmZATTON CASE WITH GRACE PERTOD

c D G
1 Loan Amount 120,000.00
2 Monthly Installment 11,001.60
3 Contractual Rate (Monthly) I.50o/o
4 Other Charges 3.00%
5 No. of Monthly Installment t2
6 (2 months grace period on principal and interest payments)
7 Installment Gross Other ols
8 Period Loan Princioal lnterest Charges Cash flows Balance
9 120,000.00 120,000.00
10 0 3,600.00 116,400.00 120,000.00
11 1 120,000.00
L2 2 120,000.00
13 3 9,201.60 1,800.00 (11,001.50) 110,798.40
14 4 9,339.62 1,661.99 (11,001.60) lot,458.79
15 5 9,479.72 1,521.88 (11,001.60) 9t,979.06
16 5 9,62L.9I 1,379.59 (11,001.60) 82,357.L5
T7 7 9,766.24 1,235.35 (11,001.60) 72,59O.9L
18 8 9,9L2.74 1,088.95 (11,001.60) 52,678.t7
19 9 10,061.43 94c.L7 (11,001.60) 52,6t6.74
20 10 1o,2L2.35 789.25 (11,001.60) 42,Q94.39
2l 11 10,365.53 636.07 (11,001.60) 32,039.96
22 L2 70,521.02 €0.58 (11,001.60) 21,517.85
23 13 10,678.83 322,77 (11,001.60) 10,839.01
24 t4 10,839.01 162.59 (11,001.60) (o.oo)
25 TOTAL 98,482.15 11,533.84 3,600.00

Monthly Installment PMT(C3,C5,-Cl)*-1 11,001.60

(using Excel PMT Function)

Effective Annual Interest Rate (ElR) = (1+lRR(F10:F221112 - L 19.

(using Excel IRR Fundion)

Effective Monthly Interest Rate (MlR)= IRR(F10:F24) 1.5

(using Excel IRR Function)
 ANNEX D

lllustratlon 4

EFFECTIVE INTEREST CATCUTATION MODET

CASE: PERIODIC INTEREST PAYM Et{T, BAU.OON PAYMENT AT MATRIW

AB CD G
1 Loan Amount 120,000.00
2 Monthly Installment 1,800.00 (lnterest Only)
3 Contractual Rate (Monthly) t-50%
4 OtherCharges 3.0095
5 No. of Monthly Installment 12
6
7 Installment Gross Otlrer o/s
8 Perlod Loan Prlncioal lnterest Charees Cashflows Balance
9 120,000.00 120,000.00
l0 0 3,600.00 116,400.00 120,000.00
t1 L 1,800.00 (1,800.00) 120,000.00
t2 2 1,800.00 (1,800.00) 120 000.00
13 3 1,800.00 (1,800.00) 120,000.00
t4 4 1,800.00 (1,80O.O0) 120,000.00
15 5 1,800.00 (1,800.00) 120,000.00
16 6 1,800.00 (1,800.00) 120,000.00
t7 7 1,800.00 (1,800.00) 120,0m.00
18 8 1,80O.00 t1,8{D.00} 120,m0.00
19 9 1,800.00 (1,80O.0O) 120,000.00
20 10 1,800.00 (1,800.00) 120,000.00
2l 11 1,800.00 (1,800.00) 120,000.00
22 t2 120,000.00 1,800.00 (121,800.00)
23 TOTAL 120,000.00 21,500.00 3,600.00

Effective Annual Interest Rate (ElR) =

(using Etrcel IRR Funaion)
(1+lRR(F10:F22ll', - 7
l-IgsEml

Effective Monthly Interest Rate (MtR)

(uslng Excel IRR Funaion)
= |RR(F10:F22)
n 1.1816l
 ANNEX E

lllustration 5

EFFECNVE I|IEREST CAtCt'tANOil MODET

FIXED EQUAI. AMORTIZATION CASE
(wEEKry |NSTATIMENTS qUOTED tN MOt{THry EFFECTTVE RATE}

c G

I Loan Amount 10,000.00

2 Weekly Installment 788.00
3 Contractual Rate (Monthly) l.sWo
4 Weekly Compounding Rate 0.3s%
5 OtherCharges 3-OWa
5 Term (Week) 13
7 Period/Year 52
E Installment Gross Other o/s
9 Period Loan Princloal Interest Char es Cash flows Balance
t0 10,000.00 10,000.00
11 0 300.00 9,700,00 10,000.00
L2 1 753.38 34.62 (788.00) 9,246.62
132 755.99 32.01 {788.00) 8,490.63
143 758.61 29.39 (788.o0) 7,732.02
154 767-2? 26.76 (788.00) 5,97A.78
165 763.87 24.73 (788.O0) 6,206.91
t76 766.51 2t-49 (788.o0) 5,444.40
187 769.17 18.83 (788.oo) 4,671.24
198 771,a3 16.17 {788.00} 3,899.41
209 774.50 13.50 (788.00) 3,124.91
21 10 777.18 10.82 (788.00) 2,347.72
22 tt 779.87 8.13 (788.00) 1,557.85
2t t2 782.57 s.43 (788.00) 785.28
24 13 78s.28 2.72 (788.00) (0.00)
25 TOTAL 10,000.00 243.98 300.00

Weekly Installment PMT(Contractual Rate,Term,-Loan Amount)*-1

(using Excel PMt Function)

Effective Annual Interest Rate (ElR) = (1+lRR(F10:F24))t'- 1

(using Excel nR Function)
f'--o4G%l

Effective Monthly lnterest Rate (MlR) =

(using Excel lRR FunctionJ
(1+|RR(F10;F24))r3f - 1
l--TItE