Loan Calculator

This loan calculator is an advanced device that helps you to examine different loan offers in a multidimensional way. Since this tool has been designed for a universal purpose, it can be highly customized, allowing you to create a setup that suits your personal preferences and available data. Therefore, you can use it as, for example, a commercial loan calculator, consumer loan calculator, or a short term loan amount calculator.

Still, the main strength of this tool is its ability to estimate the borrowing costs through the annual percentage rate, and measure the structure of your periodic and total payments. When you are about to take credit, it often happens that the lenders provide incomplete information. You may also want to compare different online loans from various aspects, to see which conforms perfectly to your priorities. For this reason, this loan calculator allows you to choose what rate you are aware of and conduct a multi-faceted analysis. What's more, through various visual representations, you can quickly learn all the details of the results. For example, the pie chart shows you how the different components of your loan relate to each other, the dynamic graph allows you to follow the progression of the balances, which are also represented in a table both on a monthly and an annual basis.

In the following article, you can read about what the loan definition is, what additional charges you may face when applying for a loan, and some advice on how to get a loan.

When you are looking for the best credit option from the myriad offers at your fingertips, you may face the problem that most bank loans have a complex structure. This is because lenders, being profit-orientated businesses, attach various additional fees to the loan, and even sometimes deliberately try to obscure the actual cost of borrowing.

Luckily, in most countries (including the U.S.A), authorities aim to protect borrowers by obliging the lenders to disclose a rate called the Annual Percentage Rate (APR). APR is designed to reveal the real borrowing cost of the transaction. Still, lenders often put much effort into finding loopholes and invent fees that are outside of the APR.

For this reason, it might be beneficial to ask the lender for a detailed list of additional costs that allows you to compute the actual APR by yourself. Besides, in some countries, like the U.S.A, lenders usually define APR by using one yearly interest calculation, that is, the interest is calculated on an annual basis. In reality, however, banks compute interest on a more frequent, usually monthly basis. Also, lenders may not disclose APR, or it might not be accurate. In this situation, you can use a nominal interest rate, and, by precisely setting the additional fees, you can learn all the necessary details.

After this brief introduction showing the tricky nature of bank lending, let's consider four cases that you may encounter when considering a bank loan:

1. You are aware of, or consider only, the nominal interest rate
2. You rely on the APR exclusively
3. You know both the nominal rate and the APR
4. You don't know either rate, but you know the periodic payment

Before reviewing the possible ways of using this calculator, it is vital that you get familiar with the terms you may encounter in this tool. Of course, if you already feel confident with financial jargon, you may skip this section. Anyway, you can still rely on the short notes linked to each variable in the fields and results.

• Interest rate (r) - It typically refers to the quoted annual rate of interest, which is one of the most relevant factors you need to consider when taking an installment loan.

• Annual Percentage Rate (APR) - It estimates the cost of borrowing per year as a percentage of the loan amount. As we mentioned above, this is the rate that lenders need to provide to disclose the real borrowing cost. Therefore, in general, this rate incorporates any additional fees attached to the loan. Still, the actual APR may higher if the lender charges fees that the regulator doesn't oblige them to include in the APR.

• Effective Annual Percentage Rate (EAPR) - This rate is a more accurate version of the simple APR, as it accounts for the different interest calculation methods.

• Loan amount (A) - The amount of loan under consideration, which constitutes the principal part of the total payment. Note that the actual received loan may differ as the lender may deduct some portion of it to cover the additional fees attached to the loan.

• Compounding frequency (m) - This refers to the frequency of how the lender computes interest on the principal. The lender may calculate interest on an annual basis (m = 1) or a quarterly basis (m = 4). Still, the general practice is that banks compound monthly (m = 12). This means that they determine interest on the outstanding principal on a specified day in each month. Note that in amortization loan constructions, as in the majority of loans, the interest on your account compounds only if the interest calculation is applied before the payment is due (e.g., the compound frequency is higher than the payment frequency or in case of late payment). The progression of your interest payment may feel like it is compounding. In general, the compounding effect comes from the varying composition of your periodic installments: as you proceed with the loan repayment, the interest payment decreases. So, you pay off the principal with growing portions, which in turn, further accelerates the reduction in the interest obligations.

• Loan term (t) - The interval over which you are obliged to repay the loan amount and all connected cost (interest and other additional fees).

• Payment frequency (q) - The regularity of due dates for the loan repayment.

• Periodic payment (P) - The amount of money you are required to pay in each period according to the payment frequency until your whole loan amount is repaid.

• Prepaid fees - Fees that you need to pay in advance (prepaid finance charge or upfront fee) or at the time the loan is consummated. Interest is not charged on these fees, but they still increases the APR.

• Loaned fees - Additional fees that the lender rolls into the loan. Since they're attached to the loan amount, banks generally charge interest on them. Consequently, loaned costs have a more substantial effect on the APR.

• Origination fee - This charge covers the lender's cost of handling a new loan application and is quoted as the percentage of the total loan amount. It's also called administration fee, underwriting fee, or processing fee. You may find origination fees in many different loan types, including personal loans (around 1% to 8%), short term business loans, or mortgage loans (about 1% or less). Note that you can always try to negotiate a lower fee, especially if you have a strong credit score. In general, there are three ways to fulfill this obligation:

  1. paid from the loan amount:

  Lenders typically deduct the fee from the loan amount, which means that the received amount will be lower than the agreed loan amount. Therefore you need to be cautious not to fall short with the received money.

  2. rolled into the loan:

  The other option that you may choose is to refinance the fee during the loan term. Note that in this case, you pay interest on it.

  3. out of pocket:

  The third option is to pay the charge out of your pocket; thus, the expense will be on your budget.

• Finance charge - This measure represents all monetary costs appearing before and during the repayment of the loan. More specifically, it's the sum of all interests (interest on the principal and loaned fees), and additional charges. The finance charge is typically higher for people with bad credit.

Now, as you are familiar with all terms used in the loan calculator, let's survey on the possible specifications and their results:

1. You rely solely on the nominal interest rate

As was mentioned before, you can sometimes get a more accurate picture of the loan offer if you rely only on the interest rate and specify all additional costs. Besides, in this way, you can learn exactly how much interest you would pay on the loan and on any additional cost rolled into the loan. Also, you can use this option when, for some reason, the APR is not advertised by the lender.

Assuming that you specify all available parameters from the list stated above, the following outputs will appear.

Results:

• received loan amount and the origination fee
• periodic payment and periodic additional fee
• total interest payment and its composition (loan amount and additional fee)
• total additional fee with interest on it
• total payment and the total finance charge (interest plus additional fees)
• APR and effective APR

2. You rely on the APR exclusively

As you already know, while lenders are obliged to quote APR, there are still some exceptions when an additional cost is missed out from the computation. In such a case, you may like to know how it modifies the APR.

Results:

• received loan
• periodic payment
• total additional fees
• total payment
• total finance charge
• adjusted APR and effective APR

3. You set the APR and the interest rate as well

By setting the nominal interest rate and the advertised APR, you can check the exact amount of money that covers the additional fees no included in the charged interest.

Results:

• received loan
• periodic payment and periodic additional fee
• total payment
• total finance charge
• total additional fees
• adjusted APR and effective APR

4. You don't know any rate and rely solely on the periodic payment

It may happen that the lender provides you only with the payment schedule, but the interest rate or APR is not known. It is exceptionally informative to estimate the annual percentage rate in such a case. Besides, you may want to compare the advertised APR with the calculated one.

Results:

• total payment
• total finance charge
• adjusted APR and effective APR

In each case, you can study the above results further using the charts and tables below the results.

Total payment percentage breakdown

The figure in this section shows you how the total payment is built up from the following components:

• received loan amount
• interest on the loan
• origination fee
• prepaid fee
• loaned fee
• interest on additional fees

In this section of the loan calculator, you can study the progress of your balances on a chart or in a table.

Graph

By visually representing the balances, you can quickly notice that the proportion of your loan components changes over the lifespan of the loan. At the beginning of the term, the principal decreases at a slower pace as a more significant part of your periodic payment covers the interest. As you proceed with the payments, the principal declines, thus the portion of the interest shrinks slowly. At the end of the term, the most significant part of your installment goes to the principal, and you pay little interest on it.

Table

To make the output more practical, you can choose between monthly and annual balances. This allows you to check what the structure of your periodic payment together with the opening and closing balance of your principal will be in every month or year. You can also follow up on how much money your loan consumed in total at a particular point in time.

The results of this calculator, due to rounding, should be considered as just a close approximation financially. For this reason, and also because of possible shortcomings, the calculator is created for instructional purposes only.