Repaying Loans

Let’s continue with the same example described on the  ⁠⁠Setting Up Loan Accounts⁠  page.
You are buying a new car with the following conditions:
  • Car price: $50,000
  • Down payment: $20,000
  • Loan amount: $30,000
  • Term: 60 months
  • APR: 7%
  • Monthly interest rate: 0.5833%
You can find the steps on how to set up your loan account on the  ⁠⁠Setting Up Loan Accounts⁠  page.
With the above conditions, you will have to pay $594 every month.
Although the total monthly payment stays the same, the ratio of the principal and interest portions changes over time.

First 10 Months Breakdown

Month
Principal
Interest
Total
1
$419
$175
$594
2
$421
$173
$594
3
$424
$170
$594
4
$426
$168
$594
5
$429
$165
$594
6
$431
$163
$594
7
$434
$160
$594
8
$436
$158
$594
9
$439
$155
$594
10
$441
$153
$594

Last 10 Months Breakdown

Month
Principal
Interest
Total
51
$561
$33
$594
52
$564
$30
$594
53
$567
$27
$594
54
$570
$24
$594
55
$573
$21
$594
56
$576
$18
$594
57
$580
$14
$594
58
$583
$11
$594
59
$587
$7
$594
60
$591
$3
$594
Total interest paid over 60 months: $5,640


Recording the Repayments (Accurate Method)

Since the principal and interest portions change each month, they must be recorded separately.
Let’s see what you have to record for Month 1:

1️⃣ Record the principal repayment

  • Transaction type: Transfer
  • Amount: $419
  • From Account: My Checking Account
  • To Account: Car Loan
This reduces your loan balance correctly.


2️⃣ Record the interest payment

  • Transaction type: Expense
  • Amount: $175
  • From Account: My Checking Account
  • Expense Category: Bank Expenses / Car Loan Interest
This ensures that:
  • Your loan account balance decreases correctly
  • Interest is tracked as an expense
  • Reports remain accurate

When you add a Loan Account in Pixel Budget, the Loan Repayments category group is automatically created on the Budgeting page, with the Car Loan category inside.
If you are using Budgeting, you can allocate the principal and interest payments in advance on the Budgeting page:
After recording the $419 transfer and the $175 interest expense, you will see the updated values on the Budgeting page:

https://slite.com/api/files/b-yJ2YXZRO7s-J/image.png?apiToken=eyJhbGciOiJIUzI1NiIsImtpZCI6IjIwMjMtMDUtMDQifQ.eyJzY29wZSI6Im5vdGUtZXhwb3J0IiwibmlkIjoiV2dBWTJhQV81V2o2MW8iLCJpYXQiOjE3NzM4MjI4MTAsImlzcyI6Imh0dHBzOi8vc2xpdGUuY29tIiwianRpIjoiWG8tZlpoc3I3S1NLVzAiLCJleHAiOjE3NzY0MTQ4MTB9.mHoKYrjt8W6SRGt_RE6ikLnt8hZfJ8-9F07xWsqtC5Y


Simplified Method (Not Accounting-Accurate)

In the example above, principal and interest were handled separately.This is the most accurate approach from an accounting perspective.
However, managing two transactions and two budget items every month can feel tedious.
If you accept that you won’t track interest separately as an expense, you can simplify the process.


How the Simplified Method Works

In the example:
  • Original debt: –$30,000
  • Total interest over 60 months: $5,640
Instead of recording interest separately each month, include the total interest amount in the starting balance of the Car Loan account: –$35,640.
Now record only one transfer each month:
  • Transaction type: Transfer
  • Amount: $594
  • From Account: My Checking Account
  • To Account: Car Loan

If you are using budgeting, allocate the full $594 in advance for the repayment:

After recording the transfer, the balance will decrease accordingly:


Important

From an accounting perspective, this simplified approach is not fully accurate because:
  • Interest is not tracked as an expense
  • Reports will not show how much interest you actually paid
However, if simplicity is more important to you than detailed interest tracking, you may choose this method.