How to calculate paluwagan interest

Paluwagan interest explained

A basic paluwagan does not earn interest — each member simply receives back the same total they contributed. However, a sinking fund with loans does generate interest income, which is distributed among members at the end of the cycle.

Interest from member loans

When the fund lends money to members, the borrowers pay interest. This interest is pooled into the fund and distributed proportionally to all members based on their number of heads.

Example calculation

Fund details:

• 10 members, each holding 1 head
• Total fund balance: ₱100,000
• Loan issued to one member: ₱20,000 at 3% per month for 3 months

Interest earned:

• Total interest = ₱20,000 × 3% × 3 months = ₱1,800
• Per head = ₱1,800 ÷ 10 = ₱180 per member

Formula

Monthly payment = Principal × (1 + rate × term) / term

For a ₱20,000 loan at 3% / month over 3 months:

• Total repayment = ₱20,000 × (1 + 0.03 × 3) = ₱21,800
• Monthly payment = ₱21,800 ÷ 3 = ₱7,266.67 / month

Non-member loan interest

Non-members can borrow through a member referral. They typically pay a higher rate (default 5% / month) since they are not fund contributors.

How interest is distributed

At the end of the fund cycle:

1. The fund manager clicks Distribute Interest.
2. The system calculates each member's share based on heads held.
3. The interest amount is credited to each member's balance.
4. Members can download their statement showing the credited interest.

Talaan ng pagkalkula (Summary)