Could someone explain the actuarial method to me for loans

Cordie Registered Posts: 12 New contributor 🐸

My client has taken out loans on 4 pieces of machinery (ie 4 sperate loans), I now have to enter these into the accounts system and am not sure how to do it correctly.

Firstly I assume a purchase invoice is entered then payment showed as been made from the loan account. But I then have to calculate a loan table to work out the interest payable each month. The documentation gives me the monthly repayments which I assume include interest but none of them give me an interest rate. The previous accountant put together a sum of digits calculation for a car, but I think I read on the HMRC site they prefer the actuarial method, I think I am just getting more confused, what is the best and correct way to work out what element of the repayment is interest?


  • peugeot
    peugeot Registered Posts: 624 Epic contributor 🐘
    I answered a thread similar to this on the technician forum, that might help you:

    If you're not given the interest rate implicit in the lease a quick way to work it out is to work out exactly how much has been repaid, take this off the balance financed and the difference is the interest.

    Kind regards
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