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diff --git a/doc/en/details-loans.docbook b/doc/en/details-loans.docbook new file mode 100644 index 0000000..d175e73 --- /dev/null +++ b/doc/en/details-loans.docbook @@ -0,0 +1,230 @@ +<?xml version="1.0" encoding="UTF-8"?> +<chapter id="details.loans"> +<chapterinfo> + <authorgroup> + <author> + <firstname>Darin</firstname> + <surname>Strait</surname> + <affiliation> + <address><email>darin.strait@ashdar-partners.com</email></address> + </affiliation> + </author> + </authorgroup> +<date>2009-08-03</date> +<releaseinfo>1.0</releaseinfo> +</chapterinfo> + +<title>Loans</title> + +<sect1 id="details.loans.general"> +<title>Understanding Loans</title> + +<para> + This section provides an overview of how &kappname; handles loans. Loan + regulations and customs vary from locality to locality. For detailed + explanations of loans, as well as information on local regulations and + customs, please see other resources. +</para> + +<para> + A loan is an agreement under which a borrower receives money from a lender and + agrees to repay the money at some future date. &kappname; allows you to track + loans by which you, as borrower, borrow money from or, as lender, lend money + to someone else. Most individuals borrow more than they lend, so you will + generally be the borrower and a finance company will generally be the + lender. If you lend money to a family member or a friend, you can use + &kappname; to keep track of this loan as well. +</para> + +<para> + This guide will assume that you are borrowing from some sort of finance + company, but the topics discussed here apply equally well to loans that you + might make to a person. The main difference between borrowing and lending + money is that an expense category is used to keep track of interest when + borrowing money and an income category is used to keep track of interest when + lending money. +</para> + +<formalpara><title>Loan Principal</title> +<para> + The amount that is lent out is called the <quote>loan amount</quote> or + <quote>principal</quote>. +</para> +</formalpara> + +<formalpara><title>Term</title> +<para> + The period of a loan is called its <quote>term</quote> of the loan. At the end + of the term, the entirety of the principal will have been returned to the + borrower. Terms are generally expressed in weeks, months, or years. A term can + also be expressed by the number of payments. For example, a one year loan with + weekly repayments could be described as a one year loan or a loan with 52 + repayments. +</para> +</formalpara> + +<formalpara><title>Repayments</title> +<para> + The repayment of the principal to the lender is generally not done as a lump + sum. Instead, a series of repayments are made, each representing a portion of + the principal. Such repayments are sometimes known as <quote>amortization + payments</quote> and in &kappname; <quote>Amortization</quote> is defined as + the act of paying off a loan in installments. +</para> +</formalpara> + +<formalpara><title>Payment Frequency</title> +<para> + The frequency of installments is referred to as <quote>Payment + Frequency</quote> in &kappname;. Examples of period might be weekly, + bi-weekly, monthly, quarterly, or yearly. In the US, periodic payments are + most commonly made every month, therefore the loan's period is one month. +</para> +</formalpara> + +<formalpara><title>Interest Rate</title> +<para> + For the privilege of being able to use the money, the borrower will pay the + lender a fee called the <quote>interest</quote>, normally expressed as a + percentage of the amount of the principal over a defined period. Interest + rates can be fixed, where the interest rate does not change over the lifetime + of the loan, or variable, where the interest rate can change over + time. Typically, interest payments are included with each periodic repayment. +</para> +</formalpara> + +<formalpara><title>Periodic Repayments</title> +<para> + Since these repayments are generally made on some sort of scheduled basis, + such as weekly, monthly, quarterly, or yearly, they are referred to as + <quote>periodic repayments</quote>. The sum of all periodic repayments plus + the final repayment will add up to the loan principal plus the interest. +</para> +</formalpara> + +<formalpara><title>Fees</title> +<para> + There may be other fees besides interest that are required to be paid with + every installment. These are called <quote>recurring fees</quote>. Examples of + recurring fees include (but are not necessarily limited to): + +<!--would prefer itemized list not in para, but formalpara requires para--> +<itemizedlist> + <listitem> + <para> + <quote>Impound</quote> or <quote>escrow</quote> account + payments. (Payments of this sort are commonly used to hold funds to pay + annual or bi-annual property taxes.) + </para> + </listitem> + + <listitem><para>Mortgage insurance</para></listitem> + + <listitem><para>Disability insurance</para></listitem> + + <listitem><para>Loan account maintenance fees</para></listitem> +</itemizedlist> +</para> +</formalpara> + +<formalpara><title>Summary</title> +<para> + In summary, the borrower receives a lump sum from the lender at the start of + the loan. The borrower makes a periodic payment to the lender. The periodic + payment is the sum of the principal payment (which is used to pay down the + balance of the loan) plus the interest payment (which rewards the lender for + allowing the use of the money by the borrower) plus any recurring fees (which + cover any incidentals.) At the end of the loan, the borrower has paid back the + entire principal. +</para> +</formalpara> +</sect1> + +<sect1 id="details.loans.example"> +<title>Example</title> +<para> + For an example, you might borrow $25,000.00 for a new auto and agree to pay + the bank one payment each month for 60 months. The interest rate on the loan + might be 5.5%. +</para> + +<para> + In this scenario, the loan amount is $25,000.00. The term of the loan is 60 + months or 5 years. The term of the loan could also be described as 60 + payments since there will be one payment per month for 5 years. The repayment + frequency is one month since periodic repayments will be made once a + month. The periodic repayment, which is calculated by &kappname;, would be + $477.53. +</para> + +<para> + A <quote>loan schedule</quote> is a chart or table that shows the date that a + repayment should be made and the amount of each periodic repayment. Often, + these schedules break the periodic payment down into its constituent parts: + the principal repayment, the interest payment, and the recurring fees payment. +</para> +</sect1> + +<sect1 id="details.loans.creation"> +<title>Creating a New Loan</title> + +<para> + In &kappname;, a loan is a type of account. Therefore, to create a new loan, + you begin by selecting <menuchoice><guimenu>Account</guimenu><guimenuitem>New + Account</guimenuitem></menuchoice>. Continue by answering the questions that + the wizard poses to you. +</para> + +<para> + Optionally, a loan can be associated with a particular institution. If you are + borrowing from a mortgage company or a car loan company, you could create an + institution entry that describes this firm and associate the institution with + your loan. If you are borrowing from your Uncle Ted, there is no requirement + to set up an institution. +</para> +</sect1> + +<sect1 id="details.loans.extra-payments"> +<title>Making Extra Principle Repayments On Loans</title> + +<para> + If you would like to make an extra principal repayment, you can do so. + Simply <link linkend="details.ledger.transactions">enter a transaction</link> + using the ledger. This extra repayment of principal will be taken into + account for the interest calculation that happens for the next periodic + payment. +</para> + +<para> + Examples of extra principal payments include (but are not necessarily limited + to): +</para> + +<itemizedlist> + <listitem><para>Contributing an extra $50 a month</para></listitem> + + <listitem> + <para> + Doubling the periodic principal repayment for every period. (The principal + repayment can be found for any particular period by referring to the loan + schedule.) + </para> + </listitem> + + <listitem> + <para> + Making a 13th principal repayment every year. (This assumes a loan that is + repaid in monthly installments.) + </para> + </listitem> +</itemizedlist> + +<para> + Note: If you are doubling the principal repaid with every periodic payment, + you will need to recalculate the loan schedule for each installment. This will + allow there to be an accurate value for the required principal repayment with + each installment. +</para> +</sect1> +</chapter> + |