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Repayment policy for multiple loans

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

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%.

Suggested Citation

  • Yasmin Agueda Rios-Solis & Mario Alberto Saucedo-Espinosa & Gabriel Arturo Caballero-Robledo, 2017. "Repayment policy for multiple loans," PLOS ONE, Public Library of Science, vol. 12(4), pages 1-12, April.
    • Handle: RePEc:plo:pone00:0175782
    DOI: 10.1371/journal.pone.0175782
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    References listed on IDEAS

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    2. Gupta, Sushil K & Kunnathur, Anand S & Dandapani, Krishnan, 1987. "Optimal repayment policies for multiple loans," Omega, Elsevier, vol. 15(4), pages 323-330.
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    4. Paulo Barbosa & Priscilla Pimentel, 2001. "A linear programming model for cash flow management in the Brazilian construction industry," Construction Management and Economics, Taylor & Francis Journals, vol. 19(5), pages 469-479.
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    6. C. Ng & Q. Ding & T. Cheng & S. Lam, 2012. "Preemptive repayment policy for multiple loans," Annals of Operations Research, Springer, vol. 192(1), pages 141-150, January.
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    Cited by:

    1. Constantin Johnen & Martin Parlasca & Oliver Mußhoff, 2021. "Promises and pitfalls of digital credit: Empirical evidence from Kenya," PLOS ONE, Public Library of Science, vol. 16(7), pages 1-14, July.
    2. Pamela A. Tongo & Deogracia B. Corpuz & Leonora L. Caminade, 2017. "Factors Affecting the Collection Efficiency of Ma-a Parish Multi-PurposeCooperative: Basis for Policy Formulation," International Journal of Business and Economic Affairs (IJBEA), Sana N. Maswadeh, vol. 2(4), pages 240-252.

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