Loan Calculator
A loan constitutes a formal agreement between a borrower and a lender, entailing the borrower's receipt of a designated sum of money (principal) that holds an obligation for repayment in the future. The majority of loans can be classified within three distinct categories.
Amortized Loan: Paying Back a Fixed Amount Periodically
Results:
| Payment Every Month | $1110.21 |
| Total of 120 Payments | $133,225.20 |
| Total Interest | $33,224.60 |
| View Amortization Table | |
Deferred Payment Loan: Paying Back a Lump Sum Due at Maturity
Bond: Paying Back a Predetermined Amount Due at Loan Maturity
Use this calculator to compute the initial value of a bond/loan based on a predetermined face value to be paid back at bond/loan maturity.
Amortized Loan: Consistent Payments Over Time
Amortized loans involve consumer loans with regular, evenly distributed payments spanning their lifespan. Payments cover both principal and interest until the loan is fully repaid. Common examples include mortgages, car loans, student loans, and personal loans. Everyday conversations typically refer to this loan type. Explore the following calculators for precise calculations and details related to each loan category. For specific needs, consider utilizing the relevant calculator below instead of the general Loan Calculator:
- Mortgage Calculator
- Car Loan Calculator
- Student Loan Calculator
- Personal Loan Calculator
Deferred Payment Loan: Lump Sum Due at Maturity
Commercial and short-term loans often fall under this category. In contrast to amortized loans with uniform payments over time, deferred payment loans require a sizable lump sum payment at loan maturity. While some loans include smaller routine payments during their term, this calculation specifically applies to loans where a single payment covering both principal and interest is due at maturity.
Bond: Lump Sum Payment at Maturity
This loan type is primarily seen in the form of bonds. Bonds function differently from conventional loans as borrowers make a predetermined payment upon maturity. The face value of a bond represents the amount paid by the issuer at maturity, assuming no default occurs.
Coupon and Zero-Coupon Bonds
Coupon and zero-coupon bonds are two common types. Coupon bonds involve interest payments based on a percentage of the face value, occurring at set intervals. Zero-coupon bonds, however, do not provide direct interest payments. Instead, borrowers sell these bonds at a deep discount and pay the face value upon maturity. Note that the calculator focuses on zero-coupon bonds.
Bond Value Fluctuations
After issuance, a bond's value changes based on various factors including interest rates and market conditions. This does not alter the bond's maturity value, but its market price can vary over its lifespan.
Loan Essentials for Borrowers
Understanding Interest Rates
Interest is a fundamental component of loans, representing the earnings banks or lenders generate. The interest rate denotes the percentage borrowers pay to lenders. Typically, interest accompanies principal repayment in most loan structures. Loan interest is commonly denoted as the Annual Percentage Rate (APR), encompassing both interest and fees. Banks often advertise the Annual Percentage Yield (APY) for accounts like savings, money markets, and CDs. It's crucial to differentiate between APR and APY. Borrowers can accurately compute interest paid using the Interest Calculator, based on advertised rates. For comprehensive APR calculations, refer to the APR Calculator.
Compounding Frequency Explained
Compound interest goes beyond the initial principal and includes interest accumulated from prior periods. The frequency of compounding impacts the overall loan amount. Typically, compounding takes place monthly. Explore compound interest further with the Compound Interest Calculator for calculations and insights.
Understanding Loan Term
The loan term refers to its duration, assuming minimum monthly payments are met. Loan duration influences the loan structure significantly. Longer terms lead to higher interest accrual over time, elevating the total cost for borrowers while reducing periodic payments.
Secured Loans: Providing Collateral for Borrowing
Secured loans involve borrowers pledging assets as collateral to secure a loan. The lender holds a legal claim over the collateral until the loan is repaid. This reduces the lender's risk of default. Common examples include mortgages and auto loans, where the property or vehicle serves as collateral. Secured loans offer higher approval rates and can benefit individuals with limited credit history or lower credit scores.
Unsecured Loans: Borrowing Without Collateral
Unsecured loans do not require collateral, prompting lenders to assess borrower creditworthiness using the five C's of credit:
- Character: Evaluates credit history, income, work experience, and legal considerations.
- Capacity: Measures repayment ability through debt-to-income ratios.
- Capital: Considers additional assets like savings, investments, or down payments.
- Collateral: Relevant for secured loans, involving pledged assets.
- Conditions: Considers industry trends, lending climate, and loan purpose.
Unsecured loans often have higher rates, shorter terms, and lower limits than secured loans. Lenders might request a co-signer for higher-risk borrowers. Defaulting may lead to collection agencies. Examples include credit cards, personal loans, and student loans. Explore our calculators for specific loan types.
How to Calculate interest on a Loan?
To calculate interest on a loan, multiply the principal amount by the interest rate and the time period of the loan. Then, divide by 100 to get the interest amount.
How do you calculate monthly interest?
Divide the APY by 12 to get the monthly interest rate. For instance, a 12% APY becomes a 1% monthly rate (12 divided by 12), while a 1% APY becomes a 0.083% monthly rate (1 divided by 12).