Result
- Monthly fee:
- Total cost: (Principal plus interest over years)
- Of which are the interests equivalent to %
Loan Calculator
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BS César Delgado
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Table of Contents
How to Use the Loan Calculator
To use our loan simulator, simply enter the requested data into the forms:
- First, enter the total loan amount, that is the amount you will request from your bank or creditor.
- Second, enter the annual interest rate that your creditor will apply to the credit.
- And third and last, the repayment term, which is the stipulated time to settle the borrowed amount plus interest.
Once you have entered all the data in their respective forms, you only need to click “Calculate” for our tool to generate the calculation of the monthly amount you must pay, as well as the total interest you should have paid once the repayment term is over.
If you want to learn how to do all these calculations by hand, we explain it below, step by step and with examples so you don't miss any details.
How to Calculate Your Loan Payments
To calculate them you will need to learn to use this mathematical formula:
$$\text{Monthly payment} = \frac{\text{Capital} * i}{1 - (1+i)^{-n}}$$
Where:
- Capital = borrowed money.
- i = interest.
- n = total number of payments.
Example
Let's imagine you take a loan of €80,000 with an annual rate of 5%, monthly payment frequency, and a maturity of 25 years.
First, we must find out the “i”
Considering that you have to pay each month, it will suffice to divide the figure into 12 equal parts.
In this case, it is 5%, which fractionally is written as 0.05 therefore:
$$i = \frac{0.05}{12} = 0.0041667$$
Then we must find out the “n”
In this step, we must find out how many payment installments the financial product you have chosen has.
In this case, if you want to find the total number of payments, multiply 25*12 to determine the number of installments which will be 300.
$$n = 25 \times 12 = 300$$
Now we calculate the amount of the monthly payment
Once you have gotten this far, it's time to calculate the amount of the monthly payment of your loan, for which it will suffice to substitute the numbers into the variables of the first formula.
$$\text{Monthly payment} = \frac{80000 * 0.0041667}{1 - (1+0.0041667)^{-300}} = 467.67$$
It may seem complex, but if you follow the procedure calmly, you will solve it more easily.
In the case of our example, the monthly installment payment would be €467.67.
Finally, we calculate the total interest
Now that you know how to calculate the monthly payment, you can calculate the total interest to be paid throughout the loan process.
For this, multiply all the installments by the monthly payment we just calculated. Then, subtract the borrowed capital.
In our case, the formula would be as follows:
$$\text{Interest} = 300 \times 467.67 - 80000 = €60301$$
How to Calculate Loan Interest with Excel
If you prefer not to calculate the interest on your loan by hand because it is very tedious, a good alternative to speed up the process is to do it with Microsoft Excel.
For this, you only need to know three figures:
The borrowed capital, let's suppose that, maintaining the previous example, you borrow €80,000.
The sum of the installments you must pay. Remember that to obtain it you must multiply the number of annual installments by the total duration in years. If, for example, you have to pay monthly installments for 25 years: 25 *12 =300.
The interest rate, of course, adapted to the number of installments you will pay over 12 months. Following the previous example, if the annual interest is 5%, the monthly rate you must enter in the equation is 0.00416.
Excel has by default the equation to calculate the monthly payments of a loan. Therefore, it will suffice to give it the necessary information to perform the calculation.
For this, enter in any cell the formula “=PMT” to tell it that you want to calculate the monthly payments of a credit or financing.
Now enter the data we have previously calculated in this order (interest rate, number of monthly payments, the total amount of the loan with a negative sign; 0).
Following the figures calculated for the previous case it would be:
$$\text{=PMT(0.0041667; 300; -80000; 0)}$$
The figure 0 is used to indicate that the total you will have to pay will be equal to 0 once you have made the 300 payments.
If you have entered the function correctly, the installment of each of your monthly payments will appear in cell A1 of your spreadsheet.
In this case, you will see €467.31.
If for any reason in cell A1 you see the result “#NUM!”, it means that you have entered something incorrectly. Double-check if all the factors are written correctly. If they are not, correct them and try again.
To calculate the total amount to pay at the end of the loan duration, simply multiply the amount of the monthly installment by the total number of installments.
In this case €467.31 * 300, which will result in €140,193. This is the total amount you will end up paying after 25 years.
If, on the other hand, you want to know how much the interest you will pay once all the loan installments have expired, subtract the initially requested amount from the calculated amount above.
In this case, it would be as follows:
$$€140193 – €80,000 = €60,193$$
This will be the total amount you will have to pay in interest.
How to Calculate the Interest on a Loan
There are various types of loans, which vary both in terms and benefits. Knowing how to determine a monthly interest rate, or the total interest you will have paid at the end of the loan, are fundamental pieces of information for acquiring the most convenient financial product.
First, you will have to define the initial capital, that is, the total amount you will obtain and that you will have to request from the bank or the respective creditor.
Second, it is essential to know the interest rate and the cost you will pay for requesting a loan. That is, the interests you will pay on the capital during the duration of the loan.
Consider the Types of Interest
Personal loans usually have fluctuations in interest rates during their validity, and this is determined both by the risk profile of the client and by the contracted period of time.
When choosing a financial product, you must choose between several options.
The first option consists of paying more expensive interest, that is, installments with higher balances over a shorter contracted period of time.
This option is much more attractive for all those users who have greater economic stability or formidable liquidity.
Of course, if you decide to pay in fewer installments, you will end up paying more expensive interest, since the longevity of the provision will be shorter.
The second option focuses more on those users with less liquidity or who have a variable monthly income, as could be the case with salespeople who earn on commission.
Subsequently, we will need to know the frequency of capitalization. From a technical point of view, the frequency of capitalization refers to the time in which the interests you must pay are calculated.
This concept has a strong impact because it will allow knowing how often the installments are due: the greater the frequency of the installments, the lower will be the amount of the installment you will have to pay.
The frequency with which a loan is capitalized also influences the calculation of compound interest, understanding these interests as those that will make you pay as a surcharge for the precedents.
The shorter the time period in which the interests are capitalized, the higher will be the total amount they will charge you.
Consider APR and EAR
The process for capitalization is the main factor to be able to distinguish the well-known as Annual Percentage Rate (APR) and the Effective Annual Rate (EAR).
Capitalization can be expressed in various ways:
The APR is the rate paid for each time period (without taking into account the frequency with which you capitalize), to which the number of installments must be multiplied, until reaching the annual rate.
The EAR is a somewhat more complex equation, which also takes into consideration interests of another nature, and helps you understand how much you will actually pay annually.
If you check the informative papers you will also find a concept known as AER, which is somewhat similar to EAR, however, you will find the rest of the costs you will pay.
Consider the Loan Repayment Time
Then, you must take into account the loan repayment time, that is, the time period in which it must be paid.
The duration changes depending on the nature of the financial product, and it is important to choose the one whose maturity suits your needs.
If it lasts longer, normally, it will imply a greater amount of interest paid in total on the loan.
Such duration is linked to the frequency with which the payments will be made. The installments can be monthly, quarterly, or even annually, or they may have a single installment.
Theoretically, any periodization is possible regardless of the required figure or the demanded time period.
In reality, those that are personal in nature and have a rather short duration, are usually paid with monthly installments.
Most personal loans establish penalties for repaying the total credit balance early, this means that you will have to pay more in the case that you prefer to extinguish the debt contracted before the agreed time.
Final Tips
Learning to calculate the installments of a loan will give you enough information to know which type and conditions are most convenient for you.
If you have liquidity and are looking for a lower-cost product to meet your needs, one with a shorter duration but with higher monthly payments is perhaps the most suitable option for you.
Remember that higher monthly payments translate into lower total interest.
And that is our small contribution on loans and interests, we hope it has helped you understand the whole procedure and has dispelled all the doubts you had before starting to read.
If you have reached this point with a good taste in your mouth, do not forget to share this post on your social networks, that way your contacts can also get to know this community of calculators and free simulators.
