so lets say a client has a current loan, Principal balance is at $10,000 and Interest balance is at $5,000. Their last payment was on January 1, 2017. If they come in and make a payment of $1000, solely to interest on February 1, 2017.

Given that scenario, if you don't make a payment affecting principal, should you still add interest accrued or not?

Lets say interest accrued is $200

Should it be

As of February 1, 2017

Principal Balance: $10,000
Interest Balance: $4,200


As of February 1, 2017

Principal Balance: $10,000
Interest Balance: $4,000
  • Can you think of any reasons why interest wouldn't accrue? – Hart CO Dec 6 '17 at 16:15
  • 3
    @HartCO None at all, which is why I think Interest Balance would be $4,200 but I just wanted to make sure. – user3276954 Dec 6 '17 at 16:22

$200 interest accrued 02-Jan to 01-Feb, and then an interest-only payment of $1000 was made on 01-Feb. Thus the math would be:

$5000 + $200 - $1,000 = $4,200

I don't see what else the answer could be.

  • 1
    I can imagine a loan that accrues interest monthly based on outstanding balance. I've not seen one in reality, but it is plausible. – D Stanley Dec 6 '17 at 18:06

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