![]() The Balance offers this Google spreadsheet for calculating amortized loans. You just need to make sure you're plugging the right numbers into the right spots. If these two steps made you break out in stress sweats, allow us to introduce to you our third and final step: use an online loan payment calculator. Be sure to talk to your lender about the pros and cons before deciding on your loan. An interest-only loan will have a lower monthly payment if you're on a tight budget, but again, you will owe the full principal amount at some point. Knowing these calculations can also help you decide which loan type would be best based on the monthly payment amount. ![]() In this case, your monthly interest-only payment for the loan above would be $62.50. Loan payment = loan balance x (annual interest rate / 12) Here is the formula the lender uses to calculate your monthly payment: If you have an interest-only loan, calculating the monthly payment is exponentially easier (if you'll pardon the expression). In this case, your monthly payment for your car’s loan term would be $200.38. N = 5 years x 12 months = 60 total periods R = 7.5% per year / 12 months = 0.625% per period (0.00625 on your calculator) ![]() When you plug in your numbers, it would shake out as this: The formula for calculating your monthly payment is:Ī = P ( r ( 1 + r ) ^ n ) / ( ( 1 + r ) ^ n - 1 ) R = Interest rate per period (in our example, that's 7.5% divided by 12 months) P = Initial principal or loan amount (in this example, $10,000) To solve the equation, you'll need to find the numbers for these values: Here's an example: let's say you get an auto loan for $10,000 at a 7.5% annual interest rate for 5 years after making a $1,000 down payment. If you have an amortized loan, calculating your loan payment can get a little hairy and potentially bring back not-so-fond memories of high school math, but stick with us and we'll help you with the numbers. Now that you have identified the type of loan you have, the second step is plugging numbers into a loan payment formula based on your loan type. Good examples of amortized loans are auto loans, personal loans, student loans, and traditional fixed-rate mortgages. Any extra payments made on this loan will go toward the principal balance. In other words, an amortized loan term requires the borrower to make scheduled, periodic payments (an amortization schedule) that are applied to both the principal and the interest. These loan options include both the interest and principal balance over a set length of time (i.e., the term). The other kind of loan is an amortized loan. Most people choose these types of loan options for their mortgage to buy a more expensive property, have more cash flexibility, and to keep overall costs low if finances are tight. While this does mean a smaller monthly payment, eventually you'll be required to pay off the full loan in a lump sum or with a higher monthly payment. With interest-only loan options, you only pay interest for the first few years, and nothing on the principal balance - the loan itself. Are you taking out an interest-only loan or an amortized loan? Once you know, you'll then be able to figure out the types of loan payment calculations you'll need to make. ![]() The first step to calculating your monthly payment actually involves no math at all - it's identifying your loan type, which will determine your loan payment schedule. Ahead, we'll break down the steps you need to learn how to calculate your loan's monthly payment with confidence. So let's crunch numbers and dive into the finances of your repayment options to be sure you know what you're borrowing.ĭon't worry - we're not just going to give you a formula and wish you well. Doing so will ensure that you borrow what you can afford on a month-to-month basis without surprises or penny-scrounging moments. Whether you're a math whiz or you slept through Algebra I, it's good to have at least a basic idea of how your repayment options are calculated. Of course, before you take out a personal loan, it's important to know what that new payment will be, and yes, what you'll have to do to pay your debt back. Let's focus on your ability to make that new payment on time and in full. Maybe it's as simple as reducing your dining out expenses or picking up a side hustle. No matter the dollar amount, it's an adjustment, but don't panic. Suddenly, all that feeling of financial flexibility goes out the window as you factor a new bill into your budget. Making a big purchase, consolidating debt, or covering emergency expenses with the help of financing feels great in the moment - until that first loan payment is due.
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