When most people borrow money, the monthly payment is one of their top concerns: is it affordable? Know your monthly expenses compared to current income; or potential income changes during the life of the new loan. If you’re not sure how much you’ll need to pay, a loan calculator – or a bit of math – can help you find the answer you need.
Calculators are great for getting a quick answer. They also make it easy to do what-if calculations, which help you truly understand your loan and how your decisions affect your finances. For example, it’s easy to make multiple comparisons on what happens if you borrow slightly less, or what happens when you get a lower interest rate.
However, different loans require different calculations. Before you start calculating payments, you’ll need to know what type of loan you’re signing up for. You’ll use a different calculation or calculator for different loans.
Some loans are interest-only loans, where you don’t pay off the loan – you only ‘service’ it by paying interest. Other loans are amortizing loans, where you pay down the loan balance over a set period of time. An example is a five-year auto loan.
You can use spreadsheets such as Google Sheets and Microsoft Excel to do the calculations and show you how the loan works year-by-year. If you don’t want to do loan payment calculations manually, online calculators can do the math for you.
Anytime you calculate your loan payment and costs, you’ll want to consider the results a rough estimate. The final details might be different depending on the assumptions your lender uses – but you’ll still get valuable information.
If you know how to calculate a loan payment, you can plan out your budget so there are no surprises. Using an online loan calculator is recommended, simply because of how easy it is to make mistakes when calculating long formulas on a regular calculator. It is critical to include taxes and insurance when calculating a mortgage payment as this will be required by most lenders.
When you are ready to calculate your potential loan, you can use one of the online loan calculators at one of these sites or on your lender’s website:
- Bankrate provides simple calculators that also show a full table of your payment schedule, including remaining debt.
- CalculatorSoup is useful for loans with unusual payment or compounding intervals.
- You can also make your own loan calculator in Excel
When you’re ready to borrow money, make sure you know it’s affordable. Loan calculators can help you understand your loan payments and make smart decisions.