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Loan Payment Calculator

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Introduction

A loan is a form of debt incurred by an individual or other entity. But, before you take on any debt, it financially prudent to know how much debt you can take on. Our simple loan payment calculator will help you determine what your monthly payment could be so you could plan your budget more effectively and stay on top of your finances!

Loan Payments are a fixed amount of money the borrower must regularly pay at a specified date of each month to a lender to repay the outstanding loan. These loan payments are made toward the principal and the interest on the loan and are the preferred way of paying back loans like mortgages, auto loans, student loans, etc.

How to use the Loan Payment Calculator?

You can calculate the loan payment by inputting the Principal, Annual Interest Rate, Loan Tenure. The variables are listed below

Principal (P)
The amount borrowed.

Annual Interest Rate (R)
The interest rate advertised by the bank while borrowing the Principal.

Loan Tenure (N) (Years or Months)
The period for which the Principal was borrowed.

Loan Payment
The fixed amount of money to pay every month to repay the loan.

What are Loan Payments?

Loan Payments are fixed amounts that are paid to a lender every month by the borrower for a set number of months to pay back the entire loan amount (Principal and Interest).

Loans allow people to buy expensive homes, cars, college education, etc.

The best feature of loan payments is that the monthly payment amount remains the same, so the borrower knows exactly how much to be paid every month and how long to settle the debt.

The disadvantage of loan payments is that it extends the loan period, increasing the interest payments over the long tenure, compared to if you were to payback the entire loan in a single payment.

For the lender, loan payments are advantageous because they get a fixed source of income and can get more returns since the loan tenure is longer.

How are loan payments calculated?

Basically, there are two ways to calculate loan payments.

Flat Rate Method

In the flat rate method, we calculate the loan payment by using the following formula,

Loan Payment (Flat Rate method)=Principal + InterestPeriod×12\text{Loan Payment (Flat Rate method)} = \normalsize \dfrac{\text{Principal + Interest}}{\text{Period} \times 12}

Reducing-Balance Method

In the reducing balance method we can calculate loan payment by using the following formula,

Loan Payment (Reducing Balance method)=P×r×(1+r)n(1+r)n−1\text{Loan Payment (Reducing Balance method)} = P \times \normalsize \dfrac{r\times(1 + r)^n}{(1+r)^n - 1}

Where

P → Principal It is the amount borrowed from the bank

r → Monthly Interest Rate

This rate is generally obtained by dividing the advertised Annual Rate or Nominal Rate by 12

n → Total number of monthly payments

This is the number of months of loan tenure

Examples

Person A borrows $750,000 from a bank at an interest rate of 7.2% per annum and the loan term is for three years. What is the Loan Payment for Person A?

We calculate the loan payments by using the following formula

Loan Payment=P×r×(1+r)n(1+r)n−1=$750,000×0.6%×(1+0.6%)36(1+0.6%)36−1=$23,226.47\begin{aligned} \text{Loan Payment} &= P \times \normalsize \dfrac{r\times(1 + r)^n}{(1+r)^n - 1}\\[10pt] &= \$750,000 \times \normalsize \dfrac{0.6\% \times (1+0.6\%)^{36}}{(1+0.6\%)^{36} - 1} \\[10pt] &= \$23,226.47 \end{aligned}

As shown above, in the calculation, you can see that the Loan Payment turns out to be $23,226.47

Author

hexacalculator design team

Our team blends expertise in mathematics, finance, engineering, physics, and statistics to create advanced, user-friendly calculators. We ensure accuracy, robustness, and simplicity, catering to professionals, students, and enthusiasts. Our diverse skills make complex calculations accessible and reliable for all users.

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