How do you calculate a loan repayment?

 

Whenever we are borrowing money, our primary concern should be to pay the monthly dues it requires. We should be sure that we can pay the monthly dues that we are about to give way including our monthly expenses. If you are still not sure how much you need to pay, read along this article - together with a Loan Repayment Calculator -  to get the answers you need.


Calculators are used to getting fast and accurate answers. It can also answer long equations in a second, that can help you think about your loans and how it can affect your monthly expenses. Just like how calculators can provide calculations, you can compare offers from different banks too.


Different loans have different Calculations


Each type of loan has a different kind of calculator in computing payments. Like for example, with an interest-only type of loans, you'll only need to compete for the interest that you are going to pay in the early years. While with amortising loans, you'll pay the loan balance within a given term.


Amortizing Loan Payment formula


Using a loan repayment calculator, this formula includes almost all the types of amortizing loans, and also most loans, except for the loans that require credit cards and interest-only.


Loan Payment = Amount / Discount Factor or P = A / D



You need the following values:


Number of Periodic Payments (n) = Payments per year times number of years

Periodic Interest Rate (i) = Annual rate divided by number of payment periods

Discount Factor (D) = {[(1 + i) ^n] - 1} / [i(1 + i)^n]



Interest-Only Loan Payment Calculation


A calculation for an interest-only loan is easier. You'll just need to multiply the amount you borrow to the annual interest rate. Then, divide the result to the number of monthly payments you are required to pay.


Example (using the same loan as above): $100,000 times .06 = $6,000 per year of interest. 6,000 divided by 12 equals $500 monthly payments.



Credit Card Payment Calculations

Just like interest-only payments, calculating cc payments are simple. Lenders will just have to calculate your minimum monthly payment.


Example: Assume you owe $7,000 on your credit card. Your minimum payment is calculated as 3 per cent of your balance:


Payment = MinRequired x Balance

Payment = .03 x $7,000

Payment = $210


Every month and interest is added to your total bill, and the tendency is that you might tend to spend more on your card once you have paid. The usual thing happens in many cases: A percentage of your total loan balance is due.


A loan repayment calculator is a big help in calculating the loan payment, but knowing the steps and formula in getting the result helps us to understand the process more.

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