Whether you are applying for a student loan, personal loan, car loan, home loan or any other kind of loan, it is essential for you to know the amount of interest you will be paying and the full repayment amount that you will be required to pay. Thus, the main benefit of an online loan calculator is that you are able to get a crystal clear idea about the monthly installment that you will pay during the repayment period for a particular loan amount.
Online loan calculator has an interface where you are required to enter various details such as amount, interest rate, loan term and type of installment such as monthly, fortnightly or weekly. The loan calculator calculates the installments you need to pay and the total annual income which is suitable for repaying the loan amount. You can enter different amounts to determine the best configuration that is in accordance with your income. The loan calculator may either have a fixed interest rate or can be customized by you as per the interest rate you are looking for. Loan calculator can be used to create an amortization chart to plan repayment schedule. Advanced loan calculators are also available which determine debt-income ratio and provide various payment scenarios for your benefit.
Most money lending institutions offer online loan calculators on their websites. By using the loan calculator, you can check the minimum installment that the lender expects for a particular loan amount. This enables you to determine the maximum amount you can apply for as per your income.
Formulas used by an online loan calculator
PMT – PMT is a function which calculates the periodic payment that will be required to pay off a loan amount at a fixed interest rate over a period of time. This enables you to know how the payment is affected by the rate and term of repayment.
PV – PV formula is used to calculate the present day value of an amount that will be received on a future date. This formula can be used when you know the amount you can pay each month and want to determine the highest loan amount you can get at that amount.
NPER – NPER formula can be used to determine the number of payment periods of a loan when you know the amount, interest rate and periodic payment amount. This is suitable for you if you want to complete the loan early by making extra payments.
Terms used by loan calculators
Loan amount – Loan amount is the amount of money that has been granted to you as a loan. The current amount left to be paid off after you have paid installments for some years can also be entered as loan amount. Periods per year – This is the number of payments that needs to be made every year. It is 12 for monthly payments, 52 for weekly payments and 1 for annual payment.
Payment per period – The amount that needs to be paid on each period is payment per period. This consists of both principal and interest.
Annual interest rate- The interest rate is fixed and differs from calculators to calculators. Interest compounds every year.
Term of loan – Term of loan is always entered in years. Even if the loan term is in months it needs to be expressed as Months/12.