Interest rates charged on loans can change during the year for any number of reasons; the rate is variable, the rate was renegotiated at renewal, or the customer’s risk profile changed to name a few. Because of this, interest rate changes on operating or term loans can be easily modeled in a FINPACK monthly cash flow projection.
Term loans
Accessing Interest Rate detail in Loan Payments data entry allows you to enter the appropriate monthly interest rate. Rates can be changed each month if needed, either increasing or decreasing as appropriate. Interest rate changes included here then correctly adjust the principal and interest payment details for any affected loan payments. If payment terms are not changing, there is no need to update the P & I Payment entered for the loan in Loan Payments data entry. Of course, if payment terms are changing as well, these updates will need to be made in the projection.
Interest rate changes are handled in this manner for current loans that have not been designated as Annual Operating on the corresponding balance sheet as well. Non-annual operating, current loans appear in Loan Payments data entry. Therefore, interest rate changes can be included as needed by accessing interest rate detail.
* Note – the default assumption is the interest rate remains at the value entered on the balance sheet for the projection period. Any changes need to be manually entered.
Annual operating loan
Changing the interest rate for the annual operating loan is completed in Annual Operating Loan data entry. As seen below, the monthly interest rate charged for this loan is entered for each month of the projection in data entry. The interest rate defaults to the annual operating loan interest rate from the balance sheet. You have control over any interest rate variations that may be needed.
Summary
Interest rate changes for operating and term loans are easily modeled in a monthly cash flow projection. Utilize these recommendations to change loan interest rates as needed for the loans in your next cash flow projection.
Pauline Van Nurden is currently the Associate Director for the FINPACK Team. She has been with the team since 2017 as an Economist.
Prior to joining the FINPACK Team, she worked as a lender. This provides her valuable industry experience and knowledge in her work with FINPACK. Pauline holds a Master’s Degree in Agricultural Education and Bachelor’s Degree in Applied Economics, both from the University of Minnesota.