How To Calculate Loan Repayments: Loan Repayment Formula With Examples
How to Calculate Loan Repayments
Learning to calculate loan repayments is a very important aspect of managing financial obligations efficiently. While some calculations are very complex, it does not really require the help of financial planners only if one knows how to calculate it.
- How to calculate loan repayments must begin with knowing the interest rate the bank offers and the amount owed. This is because banks charge interests differently so it is wrong to assume that the interest rate of one bank holds true for all the rest.
- This is one of the important lessons for all would-be debtors: to know first the interest rate that the bank charges so that one will not be incurring loans that may be difficult for one to pay off. Knowing the right formula for loan repayment not only affects individual borrowers but also big businesses that borrow from banks to pump finances into their investment.
- When it comes to loan repayment formula, the formula is usually expressed as multiplying the amount borrowed by the interest rate and multiplying it by the loan term, which is expressed in years. The result is the total amount of interest. Add the total amount loaned and the interest rate, and it will give the total payment. However, it must be remembered that this is not always the same case in all banks; other banks charge interest on a different formula.
- To help how to estimate loan repayments, the number of years is expressed in months. For example, if the term is 3 years, 3 is multiplied by 12 to yield 36 months. The next thing is to divide the total amount of repayments by the number of months, in this example 36. So if the estimated repayment is $65,000, dividing it by 36 will yield $1805.50. This amount represents the amount of repayment every month for a loan worth $65,000 with a repayment time of 36 months.
- Based on the formula mentioned above, the amount of interest depends on the length of repayment time. While some banks allow flexible repayment terms such as extending the repayment time or allowing debtors to fully settle their debts even before the full repayment time has elapsed, some banks stick to the actual repayment time. this is an important aspect to consider because the longer the repayment time, the higher the interest rate is likely to be.
SO these are some of the methods through which you can easily learn how calculate Loan Repayments