Repayment Calculator
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What is a Repayment Calculator?
A repayment calculator is a financial tool designed to help borrowers understand the costs associated with a loan. By inputting the loan amount, interest rate, and term, you can instantly see your estimated periodic payments (e.g., monthly), the total interest you'll pay over the life of the loan, and a detailed breakdown of each payment in an amortization schedule.
This tool is essential for planning major financial decisions, such as taking out a mortgage, financing a car, or getting a personal loan. It provides clarity and allows you to compare different loan scenarios to find the one that best fits your budget.
How Repayment & Amortization Work
When you take out an amortizing loan, each payment you make is split into two parts: interest and principal. Initially, a larger portion of your payment goes toward interest. As you continue to make payments, the loan balance decreases, so less interest accrues each period. Consequently, a larger portion of your payment goes toward reducing the principal.
The Payment Formula
The periodic payment for a standard amortizing loan is calculated using the following formula:
$$ M = P \frac{r(1+r)^n}{(1+r)^n - 1} $$
Where:
- $M$ = The total periodic payment
- $P$ = The principal loan amount
- $r$ = The periodic interest rate (annual rate divided by the number of payments per year)
- $n$ = The total number of payments
Effect of Extra Payments & Early Payoff
Making extra payments on your loan can have a significant positive impact on your financial health. Any amount you pay above your required periodic payment is typically applied directly to the principal balance. This has two major benefits:
- Reduced Total Interest: By lowering your principal balance faster, you reduce the amount of interest that accrues in subsequent periods. This can save you hundreds or even thousands of dollars over the loan's term.
- Shorter Loan Term: As the principal is paid down more quickly, you will pay off the entire loan sooner than the original term, freeing up your cash flow for other goals.
Our repayment calculator allows you to model the effect of both regular extra payments and one-time lump-sum payments.
Interest-Only vs. Amortizing Loans
The two main types of loan repayment structures are interest-only and amortizing.
- Amortizing Loan: As described above, each payment covers both interest and a portion of the principal. The loan balance systematically decreases to zero by the end of the term. This is the most common type for mortgages, auto loans, and personal loans.
- Interest-Only Loan: During an interest-only period, your payments only cover the interest that has accrued. The principal balance remains unchanged. These loans result in lower initial payments but do not build equity. At the end of the interest-only term, the loan often converts to an amortizing loan or the full principal balance becomes due as a lump-sum "balloon" payment.
Example Calculations
30-Year Mortgage: A $300,000 loan at 6% APR over 30 years results in a monthly payment of approximately $1,798.65. The total interest paid would be around $347,515.03.
5-Year Car Loan: A $25,000 loan at 7.5% APR over 5 years results in a monthly payment of about $501.23. The total interest paid would be $5,073.81.
Frequently Asked Questions (FAQ)
- How do I calculate my loan repayment?
- You can calculate your loan repayment using the standard amortization formula, which requires the loan amount (principal), the annual interest rate (APR), and the loan term. Our calculator automates this process to find your periodic payment.
- What is an amortization schedule?
- An amortization schedule is a complete table of periodic loan payments, showing the amount of principal and the amount of interest that comprise each payment until the loan is paid off at the end of its term.
- How do extra payments affect my loan?
- Making extra payments towards your loan's principal reduces the outstanding balance faster. This means you pay less total interest over the life of the loan and can pay it off sooner than the original term.
- What is interest-only repayment?
- An interest-only repayment is a payment that only covers the interest accrued during that period. The principal balance of the loan does not decrease. At the end of the interest-only period, the full principal amount is typically due as a lump sum or the loan converts to a standard amortizing repayment.
- How do I handle fees or closing costs?
- You generally have two options for handling loan fees. You can pay them upfront as a separate cost, or you can roll them into the loan principal. Rolling them into the principal increases your total loan amount and, consequently, your total interest paid over time.
- Are the calculator results exact?
- The results are highly accurate based on the mathematical formulas used. However, they are for illustrative purposes and may differ slightly from your lender's figures due to different rounding methods, fee structures, or specific interest calculation conventions. Always confirm official figures with your financial institution.
