Calculation of Interest
The computation of the Average Due Date simplifies interest calculations. The amount of interest can be calculated from the Average Due Date to the date of settlement instead of making separate calculation for interest for each transaction.
(ii) Where the amount is lent in a single instalment
In this case where the amount is lent in one single instalment while repayment is made in a number of equal instalments, the average due date can be calculated by taking the following steps:
1. The numbers of days (months or years) from the date of lending money to the date of each repayment should be calculated.
2. The total of such days (months or years) should be found out
3. The total calculated as per step 2 above should be divided by the number of instalments payable for repayment of the amount.
4. The result as per step 3 above will be the number of days (months or years) by which the Average Due Date is away from the date on which the loan was given.