4 Ways To Calculate Loan Payments

Bankrate. com and MLCalc are both simple calculators that also show a full table of your payment schedule, including remaining debt. CalculatorSoup is useful for loans with unusual payment or compounding intervals. For example, Canadian mortgages are typically compounded semi-annually, or twice a year. (The calculators above assume the interest is compounded monthly, and payments are made monthly. ) You can make your own loan calculator in Excel, similar to the wikiHow sample above.

This field may be labeled “base amount. "

The compounding interval does not matter here. The interest rate specified should be the nominal annual interest, even if interest is calculated more frequently.

Paying the loan off sooner will also mean less total money spent. Read the label next to this field to determine whether the calculator uses months or years.

The “Principal” is the amount of the original loan left, while “Interest” is the remaining additional charge. These calculators will display information for a “fully amortized” loan payment schedule, which means you will pay exactly the same amount each month. If you pay less than the amount displayed, you will end up paying a single extra-large payment at the end of the loan term, and you will end up paying more money total.

M = payment amount P = principal, meaning the amount of money borrowed J = effective interest rate. Note that this is usually not the annual interest rate; see below for an explanation. N = total number of payments

Even simple calculators usually have an “Ans” button. This enters the previous answer into the next calculation, which is more accurate than calculating it below. The examples below are rounded after each step, but the final step includes the answer you would get if you finished the calculation on one line, so you can check your work.

For example, if the annual interest rate is 5%, and you pay in monthly installments (12 times per year), calculate 5/100 to get 0. 05, then calculate J= 0. 05 / 12 = 0. 004167. In unusual cases, interest rates are calculated at a different interval than payment schedule. Most notably, Canadian mortgages are calculated twice a year, despite the borrower making payments twelve times a year. In this case, you would divide the annual interest by two.

In our example, (1+J)-N = (1. 004167)-60 = 0. 7792

In our example, J/(1-(answer)) = 0. 004167/(1-0. 7792) = 0. 01887

For example, if you borrowed $30,000, you would multiply your answer from the last step by 30,000. Continuing our example above, 0. 01887 * 30000 = 566. 1 dollars per month, or $566 and 10 cents. This works for any currency, not just dollars. If you calculated our example all on one line of a fancy calculator, you would get a more accurate monthly payment, very close to $566. 137, or about $566 and 14 cents each month. If we instead paid $566 and 10 cents each month like we calculated with the less accurate calculator above, we would be slightly off by the end of the loan term, and would need to pay a few dollars extra to make up for it (less than 5 in this case).

A fixed-rate loan has an unchanging interest rate. The monthly payment amount for these will never change, as long as you pay them on time. An adjustable-rate loan periodically adjusts its interest rate to match the current standard, so you could end up owing more or less money if the interest rate changes. Interest rates are only recalculated during the “adjustment periods” specified on your loan term. If you find out what the current interest rate is a few months before the next adjustment period happens, you can plan ahead.

Fully amortized loan payments are calculated so you can pay the exact same amount each month for the entire duration of the loan, paying off the principal and the interest with each payment. The calculators and formulas above all assume you want this kind of schedule. Interest only loan payment plans give you cheaper initial payments during the specified “interest only” period, because you are only paying off the interest, not the initial “principal” you borrowed. After the interest only period runs out, your monthly payments will jump to a significantly higher amount, because you’ll start paying off the principal as well as the interest. This will cost you more money in the long run.

On the other side of the coin, paying less than the monthly payment you calculated above will result in more total money spent over the long term. Also note that some loans have a minimum required monthly payment, and you could be charged additional fees if you fail to meet this.