What happens when I advance payment dates slightly?

Problem

On January 1st, 2004, you borrowed $1,000 which is to be paid of in 240 monthly installments starting on February 1st, 2004. Interest is at 8 % compounded annually.

Suppose that you advance the payment dates and pay on the 5th of each month, starting on January 5th, 2004.

What will happen?

Solution

Set up the following cash flow or open the "Loan - Advance" example in the Help examples folder.

From the "Loan - Payment" example we know that if the payment series starts on February 1st, 2004, the monthly payment would be 8.19.

Comment	Type	Occurs	Date	Amount	Occurrences	Change	Step
Loan	outflow	once	1-1-2004	1,000
Payment	unknown	monthly	1-5-2004	8.19	240	(no change)

Enter 8 into the rate field and select annual compounding. Make sure that auto update is checked.

To find out what effect the advancement of the payments has, switch to the Amortization schedule pane.

You'll see that now the loan is paid of on September 5th, 2023, instead of on January 1st, 2024: that's nearly four months earlier!