I have a client who borrows and repays money at different times. Assume the following example

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What is the correct way to calculate the repayment rate and more importantly, the time until repayment (i.e. how long does it take to pay back a the borrowed amount) when there are multiple borrowing and repayment activities? How can I weight the time until repayment by the amount that is being borrowed and repaid?


This is a typical situation the credit card providers face so I will answer with their approach. Their billing cycle is usually monthly, so at the point of billing they would calculate the minimum repayment amount, which would be the monthly interest times the current balance plus a proportion of the current outstanding balance with some floor.

In the background they would run Amortization tests on typical balances- essentially checking how long will it take for a typical balance to amortise if the cardholders repay minimum repayment amount as above, assuming no further withdrawals. The aim is to avoid negative Amortization, balance growing, but you can use concept of average life to check the effective Amortization period.


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