If you know how to calculate a loan payment, you can determine your budget so you have no surprises. It is advisable to use an online loan computer simply because it is easy to make mistakes when calculating long formulas in a common calculator.
Use an online calculator 1 Open an online loan calculator. You can use it online calculator, then open it with Google Drive or load it to open it with Excel or another spreadsheet program. Another alternative is to visit one of the following links:
- So much Bankrate.com as MLCalc They are simple calculators that also show a complete picture of your payment schedule, including the remaining debt.
- CalculatorSoup This is useful for loans with unusual composition or payment intervals. For example, Canadian mortgages usually accumulate every six months or twice a year. (Previous calculators assume that interest accrues monthly and payments are made monthly).
- You can create your own loan calculator in Excel, similar to the previous wikiHow preview.
- 2 Enter the loan amount. This is the total amount of money you have borrowed. If you calculate a partially paid loan, enter the amount you still have to pay.
- This field can be marked as “base amount”.
- 3 Enter the interest rate. This is the current annual interest rate that appears as a percentage in the loan. For example, if you pay an interest rate of 6%, type 6 .
- The compound interval is not important at this time. The specified interest rate must be the annual nominal interest rate, even if interest is calculated regularly.
- 4 Fill in the term of the loan. This is the period in which you expect to repay the loan. Use the period specified in the loan conditions to calculate the minimum monthly payment. Use a shorter period to calculate a maximum monthly payment that the loan will pay earlier.
- The repayment of the loan will also mean that it does not spend as much money in total.
- Read the label next to this field to determine if the calculator is using months or years.
- 5 Enter the start date. It is used to calculate the date when you will complete the loan.
- 6 Press “calculate.” Some calculators will automatically update the “Monthly Payment” field after you enter the information. Others wait until you “print” and then give a table or graph indicating the payment schedule.
- The “principal” is the amount of the original loan remaining, while the “interest” is the remaining additional cost.
- These calculators will display payment schedule information for a “fully amortized” loan, which means that you will pay the same amount each month.
- If you pay less than the amount shown, you will eventually pay a very large one-off payment by the end of the loan term and pay more in total.
Calculate loan payments by hand 1 Write down the formula. The formula used to calculate the payments of a loan is M = P * (J / (1- (1 + J))) . Follow the steps below to get a detailed guide to using this formula or consult this quick explanation of each variable:
- M = loan amount
- P = principal, which means that the amount was borrowed money.
- J = effective interest rate. Keep in mind that it is usually not the annual interest rate, see below for an explanation.
- N = total number of payments
- 2 Be careful when rounding off the results without finishing. Ideally use a graphic calculator or calculator software to calculate the entire formula on a line. If you use a calculator that can only calculate one step at a time, or if you want to follow the steps in detail below, move to at least four key figures before moving to the next step. Rounding to a shorter decimal number can lead to significant rounding errors in your final answer.
- Even simple calculators usually have an “Ans” button. This represents the previous answer in the following calculation, which is more accurate than calculating it as outlined below.
- The following examples are completed after each step, but the last step includes the answer you will get if you complete the calculation on a single line so that you can revise your work.
- 3 Calculate your effective interest rate (Y). Most loans call the “annual nominal interest rate” – however, it is likely that you will not pay your loan in annual installments. Divide the annual interest rate by 100 to convert it to a decimal and then divide it by the number of payments you make each year to get the effective interest rate.
- For example, if the annual interest rate is 5% and you pay monthly installments (12 times a year), calculate 5/100 to get 0.05 and then calculate J = 0.05 / 12 = 0.004167 .
- In rare cases, interest rates are calculated at a different interval from the payment schedule. In particular, Canadian mortgages are calculated twice a year, although the borrower makes payments twelve times a year. In this case, you must divide the annual interest between two.
- 4 Take into account the total number of payments (N). It is possible that the term of the loan has already specified this number or that you have to calculate it yourself. For example, if the loan term is 5 years and every year you pay twelve monthly installments, the total number of payments will be N = 5 * 12 = 60 .
- 5 Calculate (1 + J). First add 1 + J and increase the response to the power of “-N”. Make sure you include the negative sign before the N. If your calculator cannot calculate negative exponents, write it as 1 / (1 + J) in place.
- In our example, (1 + J) = (1.004167) = 0.7792
- 6 Calculate J / (1- (your answer)). In a simple calculator, first calculate 1 – the number you calculated in the previous step. Then calculate J by dividing it by the result, using the effective interest rate you calculated earlier for the value of “J”.
- In our example, J / (1- (answer)) = 0.004167 / (1-0.7792) = 0.01887
- 7 Find your monthly payment. To do this, increase your final result by the loan amount (P). The result is the exact amount of money you have to pay each month to pay your loan on time.
- For example, if you borrowed $ 30,000, you would have to multiply the last step response by 30,000. According to our previous example, 0.01887 * 30,000 = 566.1 dollars a month, or $ 566 and 10 cents.
- It works for any currency, not just dollars.
- If you calculated the entire example on a single line of a sophisticated calculator, you get a more accurate monthly payment, close to $ 566,137 or about $ 566 and 14 cents a month. If we pay $ 566 and place 10 cents a month, we calculate with the calculator less accurate above, our apartamentos a bit at the end of the loan term and will pay a few extra dollars to pay (less than 5 in this case ).
Understand how loans work 1 Includes fixed interest rates versus adjustable interest rates. Each loan is included in one of these two categories. Make sure you know the one that applies to yours:
- A Loan Fixed Rate It has an unchanging interest rate. The amount of the monthly payment for this never changes as long as you pay in time.
- A Loan Adjustable Rate Change your interest rate regularly to match the current standard, so you may be able to pay more or less money when the interest rate changes. Interest rates are only recalculated during the “adjustment periods” specified in the term of the loan. If you find out what the current interest rate is, a few months before the next adjustment period, you can plan ahead.
- 2 This includes amortization. Amortization refers to the rate at which the initial amount borrowed (the “principal”) is reduced. There are two general types of payment schedules for a loan:
- Loans fully amortized They are calculated so that you can pay the same amount each month for the duration of the loan, so that you pay the principal and interest with each payment. All the calculators and formulas above assume you want this type of schedule.
- The loan pays plans of just interests they give you cheaper installments during the specified “rent only” period because you only pay the interest, not the initial “principal” you borrowed. Once the interest-free period ends, your monthly payments will rise to a significantly higher amount, as you start paying both the principal and interest. This will cost you more money in the long run.
- 3 Pay more money to save money in the long run. By adding an additional payment, the total amount of money that the long-term loan will cost you will decrease as there is less money accruing to the interest. The sooner you do this, the more money you’ll save.
- On the other hand, paying less than the monthly payment you calculated earlier will result in more money in the long run. Also, keep in mind that some loans require a minimum payment each month and that you may charge additional fees if you do not.
- You can find other formulas to calculate the payments. It is equivalent and gives you the same result.
- Mortgage loans or “adjustable rate” loans, also called “floating rate” or “floating rate”, can drastically change your payment amount as interest rates go up and down. The “adjustment period” in these loans tells you how often interest rates are recalculated. To know if you can handle the worst case scenario, calculate the loan payments that would result if you reach the specific interest rate.