The formula to calculate the Annual Loan Constant (ALC) is:
\[ \text{ALC} = \left( \frac{\text{ADS}}{\text{LA}} \right) \times 100 \]
Where:
An annual loan constant is a percentage that represents the annual debt service (principal and interest payments) as a proportion of the total loan amount. It is a useful metric for comparing the cost of different loans and understanding the annual financial commitment required to service a loan. The annual loan constant helps borrowers and lenders assess the affordability and sustainability of a loan over its term.
Let's assume the following values:
Using the formula:
\[ \text{ALC} = \left( \frac{12,000}{100,000} \right) \times 100 = 12 \]
The Annual Loan Constant is 12%.
Let's assume the following values:
Using the formula:
\[ \text{ALC} = \left( \frac{15,000}{150,000} \right) \times 100 = 10 \]
The Annual Loan Constant is 10%.