Installment Loan Calculator
Personal loans can be a huge help when you’re in a tough spot and need some short-term emergency cash. But this helpful financial tool can potentially cause even more problems if you are unable to make your payments. Missed or late payments mean fees and hits to your credit score, ultimately putting you in a bad place financially.
Before or soon after you take out a loan, you need to calculate how much your payments will be. This way, you can adjust your budget to make sure there’s room to pay back the loan on time. To help you figure out how much your personal loan payments will be, use an installment loan calculator. This guide will walk you through how the payments are calculated.
How Do Personal Loan Repayments Work?
When you pay back a personal loan, you won’t be paying only the exact balance you received. Lenders make money off of interest and other fees. When you take out a loan, you’ll be repaying:
- Principal: The amount of money that was deposited by the lender into your account.
- Interest: How much the lender charges for the loan. This number is calculated as an APR—annual percentage rate.
- Fees: Other fees may be associated with your loan, such as application fees, late fees, insufficient funds fees, etc.
Your monthly payment is calculated based on how much you owe, your interest rates, and the term, or length, of your loan. For example, a $2,000 loan with a five-year term will have smaller payments than a three-year loan, but you may end up paying more for the loan overall in interest and fees.
What Kind of Loan Are You Getting?
The first step to getting an installment loan is knowing what kind of loan you’re applying for: an interest-only or amortizing loan.
- Interest-only loan: For the first few years you pay interest only, and nothing toward the principal.
- Amortizing loan: From the beginning, payments are put toward both interest and the principal over a set period of time, known as the loan term.
Plug Your Loan Information into a Payment Formula
This is the kind of situation your sixth-grade math teacher was talking about when she assured you that math would come up in the real world. These formulas can help you understand how personal loan calculators work and what you’ll need to pay each month.
Interest-only Loan Formula
The formula for calculating monthly loan payment for an interest-only loan is as follows:
- Loan balance x (annual interest rate/12) = monthly loan payment
So if you have a $5,000 personal loan at 8% interest with a 2-year term, your payments will be:
- $5,000 x (0.08/12) = about $33 dollars per month
Amortizing Loan Formula
The process gets a little more complicated with amortizing loans. Each month, the amount you pay in interest will change as you slowly pay off the principal. Follow this process to calculate how much you owe in interest:
- Divide the APR by the number of payments in a year—usually, that’s 12, or once per month.
- Multiply that by the balance of your loan. Your first payment will start at the full amount you borrowed.
So if you took out a car loan—a common example of an amortizing loan—for $20,000 with a 6% APR and a five-year term and monthly payments:
- Divide the APR (0.06) by 12 = 0.005
- Multiply the balance ($20,000) by 0.005 = 100
In this situation, your monthly interest payment starts at $100, plus your monthly payment toward the principal. Each month the interest payment will change based on how much money is left in your principal. Your lender will tell you your monthly payment, or you can calculate it using an installment loan calculator.
Use an Installment Loan Calculator
Does math still give you nightmares? You aren’t alone. Make things simple by going straight to a personal loan calculator. You can find a number for free online, including:
Understanding how much you’ll pay each month toward your loans will help you decide if you can afford to take out that loan or not, and help you plan now to fit the payments into your budget.
Ready to take out an installment loan? Learn about Lift Credit’s no credit check installment loans in Utah.