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I am working on developing my own loan payments schedule generator and I have a question regarding how fraction cents

For example, this load:

  • Principal: $10,000
  • Interest: 5% per year
  • Period: 48 months

Using the usual payment formula, that give a payment of: $230.29293570646587 (A). I round this amount to the nearest cent which give me $230.29 (B).

The truncated portion of the payment amount accumulate over the payment periods to about $0.14*. How do bank manage that difference? I presume that they aren't willing to leave money on the table and they would recoup the money in some form. How do they proceed?

Let me know if you need more precision.

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*(Amount_A - Amount_B)*48 = $0.1409139103616326

  • The missing $0.002929.. also accumulates interest as the debt is amortized so the bank would be out almost 16 cents at the end of the four years... Much more significant in a 25 or 30 year mortgage... – DJohnM May 22 at 18:13
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For every loan I have had the last payment was a slightly different amount. The delta was to account those fractions of cents.

For a 30 year loan the delta would be at most $3.60 for the last payment.

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