Re: Loan accounts

On Saturday, October 15, 2011 8:27 AM, "John Sampson"
<jrs.idx-XZoyATsUNX5Wk0Htik3J/[email protected]> wrote:
> I am surprised that lenders would be so confusing about interest rates. 

It is not in the immediate financial interest of lenders to be clear
about loan terms. They make more money, at least in the short run, by
confusing their customers.

> There should be a law requiring clarity.

We have some laws of that sort in the US. They help some, but the
lenders put a lot of effort into confusing the situation in ways that
get around the laws. The law that requires points to be included in the
advertised rate is one of those, as it limits the extent to which
lenders can advertise low interest rates and make up for it in fees.

> One thing though - for making additional payments I would have put minus 
> quantities in the Extra Principal column,
> thinking I was reducing the principal.

Depends on where you're looking at it. If you are entering a payment
(say from a checking account), then you enter a positive amount -- as a
payment, which make it negative. It's then positive on the other side,
the loan. The loan principal is the amount you owe -- a liability -- as
is therefore negative. Look at the loan account in MD, and you'll see
that the figure in the Balance column is red and has a minus sign. As a
result, to reduce the absolute value of the principal, you need to add
to it.

MD tries to be strictly consistent in this approach (which is standard
bookkeeping), though there are some small discrepancies. One of these
discrepancies is in the loan account display -- the running balance in
the register is shown as negative, but the "principal remaining" on the
upper right is positive. Another discrepancy is that entering a value in
the payment column is really entering a debit, a negative amount. You'll
notice that MD does not allow you to enter both a payment and a deposit
in the same transaction -- that's because they are the same number and
it's just that a negative amount is displayed in one column and a
positive amount in the other. It could be just one column, but that
would confuse most of us.

This does mean that the MD amounts sometimes differ from what you see on
statements. This is perhaps most obvious on credit cards, where the
statement invariably (AFAIK) shows the liability balance as a positive
number, which you have to enter as a negative number to reconcile in MD.

But it's mostly consistent ... if you owe it, it's negative.

Edward
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