How does a transfer entry work for interest bearing loan payments?

TimelyBills calculates interest for loan payments automatically when you create a transfer entry to a loan account, based on pre-set interest parameters.

Example: If you have a Home Loan account set up already, with a 6% interest rate and a 5-year repayment period, the app calculates the interest based on these parameters whenever you make a transfer to this account. You can adjust the suggested interest amount if needed, but the app generally uses a standard formula to ensure accuracy.

• When you create a transfer entry, the Home Loan account will be updated with the principal amount from the transfer. The app does not update the total amount but focuses on the principal.
• For recurring transfers to a Home Loan account, the app applies the same formula to calculate interest and adjust the principal amount accordingly.

Steps to Create a Loan Transfer Entry

1. Create a Loan Account (in case one is not already setup):

• Go to the dashboard.
• Navigate to Account.
• Click the + button at the top right and select Add Manual Account.
• Choose Loan and enter the mandatory details such as total loan amount, interest rate, current outstanding balance, duration, and payment frequency.

2. Create a Transfer Entry:

• Go to the dashboard and select Transfer.
• Fill in the details:
  • Amount: Your monthly payment.
  • From Account: Choose the account from which the payment will be made.
  • Loan Account: Choose the loan account you created.
  • Date of Payment: Enter the payment date.
  • Frequency: Select the payment frequency.
  • Payment Type: Choose either Regular Payment (where the app will automatically calculate interest for future payments) or Prepayment (where the full amount is deducted from the total outstanding balance for each transfer).
    • Regular Payment: This is kind of installment payment to any loan account where the installment payment also contains the interest along with principal and only the principal needs to be deducted.
    • Prepayment: This is generally the full payment we make to close the loan account, which includes the final due amount altogether.
• Optionally, toggle on the option to consider this transfer as an expense.
• Add any notes if needed.
• Click the checkmark at the top right to create the transfer.

3. Verify the Transfer:

• Go to Accounts and check your loan account to see the updated outstanding loan amount and the transaction details.