For a fixed interest loan, the Payment Calculator can calculate the loan period or monthly payment amount. To determine a fixed-term loan’s monthly payment, select the “Fixed Term” tab. To determine how long it will take to pay off a loan with a fixed monthly payment, select the “Fixed Payments” tab.
A loan is an agreement between a lender and a borrower whereby the borrower receives a sum of money (the principal) that they must repay later. Loans can be tailored according to a number of variables. There can be an overwhelming amount of alternatives.
**Note: For exceeding 120 no. of payments, a group of 12 payments will be combined into a single payment number for better chart visibility.
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Two of the most common deciding factors are the term and monthly payment amount, which are separated by tabs in the calculator above.
Fixed Term
The time restriction method to loan repayment is commonly used for mortgages, vehicle loans, and many other types of loans. The length of a debt obligation can have an impact on a person’s long-term financial objectives, thus deciding to have regular monthly payments for a mortgage, in particular, between 30 and 15 years, or other durations, might be crucial. Here are a few instances:
- Choosing a shorter mortgage term because of the uncertainty of long-term job security or preference for a lower interest rate while there is a sizable amount in savings
- Choosing a longer mortgage term in order to time it correctly with the release of Social Security retirement benefits, which can be used to pay off the mortgage
The Payment Calculator can assist in sorting out the specifics of these factors. It can also be used while choosing between auto financing alternatives, which might have terms ranging from 12 to 96 months. The shortest period usually results in the lowest overall amount paid for the automobile (interest + principal), despite the fact that many car buyers will be tempted to choose the longest option that yields the lowest monthly payment.
To choose which term best suits their needs and budget, car purchasers can try out the many options. For further details or to perform calculations related to auto loans or mortgages, please visit the Mortgage Calculator or Auto Loan Calculator.
Fixed Monthly Payment Amount
This technique is frequently used to calculate how quickly credit card debt may be paid off and aids in calculating the amount of time needed to pay off a loan. A person who has some spare cash at the end of each month might use this calculator to estimate how early they can pay off their loan. Just enter the additional amount in the calculator’s “Monthly Pay” area.
Read Also: Retirement Calculator
A computation can produce a monthly payment that is insufficient to cover the principal and interest on a loan. This implies that interest will accrue at a rate that will make it impossible to repay the loan at the specified “Monthly Pay” rate. If so, just change one of the three inputs until the calculation yields a feasible result. “Monthly Pay” must be increased, “Loan Amount” must be decreased, or “Interest Rate” must decreased.
Interest Rate (APR)
When using a figure for this input, it is important to make the distinction between interest rate and annual percentage rate (APR). Especially when very large loans are involved, such as mortgages, the difference can be up to thousands of dollars. By definition, the interest rate is simply the cost of borrowing the principal loan amount.
On the other hand, APR is a broader measure of the cost of a loan, which rolls in other costs such as broker fees, discount points, closing costs, and administrative fees. In other words, instead of upfront payments, these additional costs are added onto the cost of borrowing the loan and prorated over the life of the loan instead. If there are no fees associated with a loan, then the interest rate equals the APR.
Borrowers can input both interest rate and APR (if they know them) into the calculator to see the different results. Use interest rate in order to determine loan details without the addition of other costs. To find the total cost of the loan, use APR. The advertised APR generally provides more accurate loan details.
Variable vs. Fixed
Generally speaking, there are two types of interest available for loans: variable (also known as adjustable or floating) and fixed. Most loans, including traditional amortized loans like mortgages, auto loans, and student loans, have set interest rates. Home equity lines of credit (HELOC), adjustable-rate mortgages, and certain student and personal loans are examples of variable loans.
The interest rate on variable rate loans may fluctuate in response to indices like inflation or the central bank rate, which are typically influenced by changes in the economy. The London Interbank Offered Rate (Libor) or the key index rate established by the U.S. Federal Reserve are the financial indices that lenders most frequently use for determining variable rates.
Variable loan rates fluctuate over time, so changes in rates will affect regular payment amounts. For example, a change in rates in a given month will affect both the monthly payment due that month and the total estimated interest owed during the loan’s life. Regardless of how much the index interest rate fluctuates, certain lenders may cap variable loan rates, which are upper bounds on the interest rate charged.
Lenders only change interest rates on a regular basis, as agreed upon by the borrower and probably stated in the loan agreement. Therefore, the interest rate on a variable loan does not always change instantly when an index interest rate changes. In general, when indexed interest rates are down, variable rates are better for the borrower.
There are two types of credit card rates: variable and fixed. For credit cards with variable interest rates, credit card issuers are exempt from providing prior notification of an interest rate rise. Borrowers with good credit may be able to ask for better rates on their credit cards or variable loans.
