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How to Calculate a Loan with Scheduled Skipped Payments
Tutorial 12

"Skipped payment loans" are debts that are issued that have an irregular payment schedule. Such loans are prearranged and the skipped payments are not considered to be missed payments. Our Ultimate Financial Calculator will easily handle loans with skipped payments.

Background: Certain businesses may need to borrow money at different times of the year to even out their cash flow. Or individuals may have a career which keeps them employed for only some of the months out of the year (outside construction workers may not work in January or February). There are times when these potential borrowers will take out a loan which has terms that allow them to skip making payments in predetermined months when cash flow may be low or even nonexistent. This example shows how to setup this type of loan.

This example applies to our online    Ultimate Financial Calculator. The     C-Value! program for Windows works in a similar way and has a few more features including the ability to save your work.

All users should work through the first tutorial to understand basic concepts about the calculator.

To create an amortization table that allows for skipped payments, follow these steps:

  1. Set "Schedule Type" to "Loan"
    • Or click the [Clear] button to clear any previous entries.
    • The top two rows of the grid will not be empty
    • Delete the 2nd row by selecting it and clicking on the [Delete] button
  2. Set "Rounding" to "Adjust last amount to reach "0" balance" by clicking on the {Settings} {Rounding Options}
  3. In the header section, make the following settings:
    1. For "Calculate Method" select "Normal".
    2. Set "Initial Compounding" to "Daily".
    3. Enter 8.75 for the "Initial Interest Rate".
  1. In row one of the cash flow input area, create a "Loan" series
    1. Set the "Date" to February 15, 2016
    2. Set the "Amount" to 75,000.00
    3. Set the "# Periods" to 1
      • Note: Since the number of periods is 1, you will not be able to set a frequency. If a frequency is set, it will be cleared when you leave the row
  1. Move to the second row of the cash flow input area. Select "Payment" for the "Series". Initially, the regular payment amount is unknown
    1. Set the "Date" to "March 15, 2016"
    2. Set the "Amount" to "Unknown"
    3. Set the "# Periods" to 48
      • In this case "48" months is the term of the loan, including the skipped payments
      • The number of actual payments will be less
      • Though the term is 48 months (4 years), due to the skipped payments, the calculated payment will be larger than if it was paid in 48 months

Before the calculation, your screen will look like this.

Skipped payment loan setup
Initial preparation of a loan with scheduled skipped payment
  1. Display the "Options for Selected Cash Flow Series" by clicking in the second row's right most column under "Cash Flow Options"
    1. Select the "Monthly Skip" tab at the top of the window
    2. Make sure "Activate Monthly Skip series for the currently highlighted series" is selected
    3. Set "Regular monthly amount" to "Unknown"
    4. Set "Amount on skipped months" to $0.00
      • Skipped months do not necessarily have to have a zero payment amount
    5. Check "July" and "August" for the skipped months
    6. Click [Save Changes]
Selecting months to skip
Selecting months to skip
  1. Calculate the unknown. The result is $2,232.10
    • This is the required level payment amount when no payments are made in either July or August
Calculated level payment
Calculated level payment amount considering the skipped months
  1. If you want to see a detailed amortization schedule showing how the monthly payment is allocated between principal and interest click on the [Schedule] button.
    • Notice while no payment is due in either July or August, interest still accrues
Amortization schedule with skipped payments
Amortization schedule showing skipped payments
  • Note: In addition to the "Monthly Skip" option, there is a "Series Skip" option
    • "Skip Series" works with payment frequencies other than monthly
    • User sets the number to make followed by the number to skip
Skip Series option
Skip Series option

Skipped payments can be an agreed upon feature between a borrower and lender for any loan. Calculating the unknown payment amount for such a series is complex. A financial calculator needs to account for the irregular cash flow and the accruing interest when payments are skipped. The correct calculation will result in a minimal rounding adjustment when the last payment is made. The Ultimate Financial Calculator makes this calculation a breeze.