Loan Calculator Introduction

Loan calculators are nothing but a way to calculate the amount of money to be paid to the lender on a monthly basis with the given interest rate and the period for which it is taken. The loan amount can be calculated with the help of a formula, however, this is least preferred as now technology as developed to a very great extent and one can have an access to the online loan calculator.

When calculating the loan amount manually the formula that is used is mentioned below;

M = P * (J / (1 – (1 + J)-N)), Where:

• M = payment amount
• P = principal, meaning the amount of money borrowed
• J = effective interest rate
• N = total number of payments

The above information is necessary and required to calculate the loan amount in both the cases, i.e. manually or with the help of calculators. One of the important points that need to be remembered is “J” which is the interest rate is not per annum rate it should be the monthly interest rate. So in the first place, the annual interest rate need to be divided by 100 and then the rate has to be further divided by 12 months.

A next important aspect is a total number of payments which is denoted as “N”. This means not the total number of years the loan is taken for but it is the total number of months for which it is taken. For example, if the loan duration is for 5 years and its monthly payment then a total number of payments will be (5*12=60), likewise if it is for 7 years then the total number of payments will be (7*12=84). This also need to be calculated and then all the values need to be substituted in the formula and it gives you the payment amount monthly.

While doing it online, one just need to feed in all the figures and click a button called “calculate” which then calculates and gives the monthly payment amount. Online loan calculators are preferred more than the manual calculation because the possibility of error making is lesser or nil while doing it in calculators.