Annuity has its own function for finance. The existence of annuities is to make it easier for customers to make payments or receive returns from their investments. In the credit process, the annuity allows the borrower to pay installments in the same amount in each period.
Annuity is a financial system in accounting in the form of a series of fixed receipts or payments that must be made periodically within a certain period. Although annuity is a modification of the effective method of calculating interest, there are slight differences in the calculation of principal installments.
The difference is if the principal installments are calculated by dividing the loan amount and the credit tenor. Meanwhile, it is usually calculated by reducing the total installments with the results of calculating the annuity interest to determine the amount of the installments. It's not just a matter of calculating credit interest, the calculation of annuity interest can also be in terms of insurance (for example, in insurance activities, it can be seen in the context of pension benefits that are paid regularly every month).
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