Posted in Finance, Accounting and Economics Terms, Total Reads: 717

Advertisements

A Fixed rate payment is the kind of loan where the interest rate is fixed for the entire repayment period. This allows the lender and borrower to exactly calculate the future payments. Some of the other loans provided are floating in nature i.e. the interest rate is benchmarked on other rates such as the LIBOR + 2% rate. Thus when the LIBOR rate changes the interest payment changes simultaneously.

Fixed rate payment can also be defined as the constant amount paid by borrower to the lender in a period. If the repayment cycle is repeated at the end of every period, it is termed as ordinary annuity and if the repayment is to be done at the beginning of each term ,it is termed as annuity due. The loan is redeemed in equal instalments which covers both the principal and interest amount. The formulae to calculate the equal instalments is :

The terms are defined as follows:

P is the amount paid for each term

R is the interest rate for the period

N is the number of periods

Loan is the total loan amount

R is the nominal interest rate for the period. If the interest charged is 12% annually and the payment period is taken to be monthly, then R for the period will be 12% / 12 = 1%.

Similarly N i.e. the number of period can be calculated by multiplying the number of years to the number of periods in a year. If the payment is done on quarterly basis and the number of years to repay the loan is 10 years then N= 4*10 i.e. 40 periods. Similarly if the repayment to be done is monthly in nature then N would be 120.

Hence, this concludes the definition of Fixed Rate Payment along with its overview.

Advertisements

Browse the definition and meaning of more terms similar to Fixed Rate Payment. The Management Dictionary covers over 7000 business concepts from 6 categories.

Search & Explore : Management Dictionary

IMPORTANT DEFINITIONS

Similar Definitions from same Category:

- Fair Market Value (FMV)
- Category Performance Ratio (CPR)
- Oligopsony
- Secondary Mortgage Loan
- Wholesale Loans

Quizzes!

Have you tried MBASkool Quizzes ?

Related Business Content

Top Companies Lists 2018

- Top 10 Global Mobile Phone Brands 2018
- Top 10 FMCG Companies in World 2018
- Top 10 IT Companies in World 2018
- Top 10 Car Brands in World 2018
- Top 10 Telecom Companies in World 2018
- Top 10 Electronics Companies in World 2018
- Top 10 IT Companies in India 2018
- Top 10 Pharma Companies in World 2018
- Top 10 Insurance Companies in World 2018
- Top 10 Apparel Brands in World 2018
- Top 10 Banks in World 2018
- More Lists

Original Template You! Bumpit! by Youjoomla.com Copyright © 2008 All rights reserved