## Loan Calculator

Use this loan calculator to estimate the total amount needed to pay back the principal and interest on a loan at maturity. It also calculates the total interest owed assuming a fixed interest rate for the entire loan term.

## How to use the loan calculator?

To use the loan calculator, input the amount of the loan (principal) first, which is the amount of credit you wish to take. Then, enter the nominal annual interest rate (APR) and the compounding period (usually monthly). Next, input the loan term or payback period, which may or may not be the same as the compounding period.

The calculator will provide the payback amount, the total payment for the entire loan term, and the total interest accrued. It’s important to note that it does not take into account any fees for servicing the loan, which may vary depending on the financial institution and loan contract. The calculator can be used for most common types of loans, such as mortgages, car loans, student loans, and personal loans.

## The mathematics of loan pay back

It’s generally best to pay back a loan as it compounds the interest rate. Compounding means that the accrued interest is added to the principal, and will accrue interest on its own in the next compounding period. For example, if your loan compounds monthly and you only pay it once a year, you will be paying interest on the interest, slightly increasing the cost of the loan compared to making monthly payments.

In the beginning of repaying a loan, a large proportion of the payments go towards covering the high interest rate. For example, a 5% interest rate on a $50,000 loan is $208.33 during the first month of repayment, but it only equals $117.09 by the beginning of year 5 of repaying a 10-year loan. As a result, initially, only a small portion of your payments cover the principal. The closer you get to the maturity date, the more your payments will go towards paying off the principal. This is why it’s usually riskier to fall behind on payments in the early years of a long-term loan, as opposed to later in the loan term.

Our loan calculator is a helpful tool for assessing the necessary financial resources needed to properly service your loan.

## Loan basics for money borrowers

When using our loan calculator, you may come across different types of loans, such as mortgages, home equity loans, auto loans, student loans, and personal loans.

### Secured versus unsecured loans

Loans can be classified into two types based on whether collateral is required or not. A secured loan, such as a mortgage or auto loan, requires the borrower to put up an asset as collateral. In case of non-repayment, the lender may repossess the collateral. An unsecured loan, such as a personal loan, does not require collateral and the lender bears the risk of borrower insolvency.

### What is an interest rate?

Interest rate is a percentage of the loan amount that increases during each compounding period. It is usually expressed as the annual percentage rate (APR). The lower the interest rate, the better it is for the borrower.

### Fixed versus variable interest rate

The interest rate on a loan can be fixed or variable. A fixed rate remains the same throughout the loan term, while a variable rate can change depending on a financial index or other metric. Variable rate loans may offer better initial terms but may result in higher rates in certain economic conditions.

### What is a loan term?

The loan term is the length of time in which the loan should be fully repaid with interest. A longer term loan typically results in a greater amount of interest to be paid, but payments are in smaller installments.

### What is compounding frequency?

The compounding frequency refers to how often interest is accumulated on the loan and directly affects repayment calculations. Compounding frequency can be monthly, yearly or just once at the end, as with bonds. It’s important to note that the repayment frequency can differ from the compounding frequency.

## Financial caution

This software is a basic tool for estimating loan repayment and total interest, but it is not a substitute for professional financial advice. The accuracy of the calculations depends on the accuracy of your input, which can carry uncertainty and risk. It’s important to consult a qualified professional when making significant financial decisions and long-term agreements, such as mortgages, education loans, and car loans. Use the calculator’s information critically and at your own risk.