Repayment policy for multiple loans

Yasmin Agueda Rios-Solis, Mario Alberto Saucedo-Espinosa and Gabriel Arturo Caballero-Robledo

PLOS ONE, 2017, vol. 12, issue 4, 1-12

Abstract: The Repayment Policy for Multiple Loans is about a given set of loans and a monthly incoming cash flow: what is the best way to allocate the monthly income to repay such loans? In this article, we close the almost 20-year-old open question about how to model the repayment policy for multiple loans problem together with its computational complexity. Thus, we propose a mixed integer linear programming model that establishes an optimal repayment schedule by minimizing the total amount of cash required to repay the loans. We prove that the most employed repayment strategies, such as the highest interest debt and the debt snowball methods, are not optimal. Experimental results on simulated cases based on real data show that our methodology obtains on average more than 4% of savings, that is, the debtor pays approximately 4% less to the bank or loaner, which is a considerable amount in finances. In certain cases, the debtor can save up to 40%.

Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0175782 (text/html)
https://journals.plos.org/plosone/article/file?id= ... 75782&type=printable (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:plo:pone00:0175782

DOI: 10.1371/journal.pone.0175782

Access Statistics for this article

More articles in PLOS ONE from Public Library of Science
Bibliographic data for series maintained by plosone ().