Negotiated Repayment: Yearwise Principal Worked Example
Learn how yearwise principal allocations affect monthly loan repayments and interest.
Worked example: ₹1 crore over 5 years at 10%.
Consider a ₹1 crore term loan at 10% per annum with five years of repayments. A borrower projects rising cash flows and proposes annual principal repayments of ₹10 lakh, ₹15 lakh, ₹20 lakh, ₹25 lakh and ₹30 lakh.
| Year | Principal allocated | Monthly principal |
|---|---|---|
| 1 | ₹10,00,000 | ₹83,333.33 |
| 2 | ₹15,00,000 | ₹1,25,000 |
| 3 | ₹20,00,000 | ₹1,66,666.67 |
| 4 | ₹25,00,000 | ₹2,08,333.33 |
| 5 | ₹30,00,000 | ₹2,50,000 |
For each month, interest = opening principal × 10% ÷ 12, and payment equals that month's principal plus interest. In the first month, interest is ₹83,333.33 and principal is about ₹83,333.33, so total payment is about ₹1,66,666.67.
The annual allocations must total ₹1 crore; the final closing principal must be zero. Banks may approve a different repayment structure depending on projected cash flow and policy.
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Assumptions and limitations
These examples are educational and use the stated illustrative assumptions. Actual interest and repayment calculations can depend on day-count convention, compounding, rounding, moratorium, fees, rate resets, sanction conditions and bank policy. Verify against the sanction letter and account statement.