The amortization plan is undoubtedly one of the fundamental pieces to understand and evaluate the convenience of a loan or a loan. It is indeed in the amortization plan that the number of installments, the composition of the monthly amount to be paid to the bank and the timing provided for repayment of the loan are detailed. The ideas in this regard are often vague and approximate, which is why in this article we have selected 5 questions and answers on what the amortization plan is, where to find it and the main considerations to keep in mind when a loan is stipulated. A sort of reading guide which, we are sure, will help even the less experienced to find their way better!
1) What is the amortization plan and how is it structured?
The amortization schedule of a loan is the program defined in agreement with the bank or the credit institution to repay the loan contract until its total extinction. Salient elements of the amortization plan are the number of installments (equivalent to the number of months), the amount and the composition of each installment. Multiplying the number of installments by the monthly amount to be paid you will get the total credit funded and interest towards the creditor.
2) Italian or French amortization schedule?
In Italy the alternatives proposed for the amortization plan are two: the rarer Italianate plan, and the much more common French plan. In the first case, the principal amount of each installment is kept constant, adding the interest on the residual capital. The amount of each installment therefore decreases over time in line with the decrease in the amount of interest. In the second case, the interest rate is higher in the first period and decreases during amortization (which is why the French amortization plan is also called “progressive”). The composition of the two installments of the installment determines an installment of equal amount for the entire duration of the amortization (hence the formula “constant rate amortization”).
3) When I receive a quote, do I have information about the plan?
The type of amortization plan envisaged and the costs of the loan must be reported in any loan and loan estimate. It is not certain that this will coincide perfectly with what was then final in the contract, but it is advisable that the conditions of the plan are at least specified in a preliminary way right away, so as to allow the applicant to orientate himself in the choice and evaluation of the best proposal.
4) Where to find the data of the repayment plan?
The SECCI Form is the document that, by law, describes in detail the contractual conditions of a loan. In particular, in section 2 (Main features of the credit product) we find the part dedicated to the amortization plan of a loan. The SECCI form, duly signed by the applicant and net of any subsequent modifications for which a new SECCI will be provided, will then be authentic for the entire duration of the loan.
5) How to know the number of installments to be paid and pending?
The amortization plan represents a memorandum of the installments to be paid and the portion of interest and capital repaid over time. In order to keep the payment situation under control, it is advisable in any case to contact the online platforms that the institute makes available to the customer where it is possible to monitor the number of installments paid and pending, or alternatively in paper communications sent by month mail in one month or one-off at the customer’s address. In this way it is possible to have the certainty of the payments made, of any delays and of the net residue to be returned.
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