How to Calculate a Loan Payment?

The earth might revolve around the sun but the world today revolves around money. Banks now offer loans for every possible occasion, be it for your house, vehicle or any other personal/professional requirement.So you have decided to approach a particular bank for a loan. Unlike in the past it is now much easier to get loans and you might think that your work is limited till the time you get the money. Getting a loan sanctioned might be the first step involved but loan payment can become a hassle if not paid attention to. So you need to calculate loan EMI by Loan Calculator

The math around calculating the loan payment amount might confuse a lot of people and they might leave it upto the bank to guide them through the payment process. This confusion however can be easily dispelled. The world of banking has now entered new domains and calculating loan payments is easier now with Online Loan Calculator tools available in the market.

Calculating Loan Payment :

Manually

Manual calculation of loan payment revolves around a few formula, which seem confusing but are easy to understand by keeping an open mind.

P = (R * A) / (1 - (1+R)^-N)

Here,

P is the Payment amount,

A is the Loan amount availed,

R is the annual rate of interest,

N is the number of payments.

So if one takes a loan of Rs 10,000 at the rate of 10% per annum for 2 years the calculation will look like this.

P= (10*10,000)/ (1-(1+10)^-2)

P= 11,074.78

The total amount is to be paid in 24 months, which means the monthly payment is Rs 461.45.

Given below is another formula to calculate loan payment amount.

P = RA / (1-(1+R)^-N)

Here,

P is the payment amount,

A is the loan amount availed,

R is the rate of interest,                                                    

N is the number of periods.

 

Points to remember while calculating loan amount manually

·         The rate of interest for the given period and the number of periods (months/years) should be kept consistent with each other.

·         If payments are to be made monthly the interest rate per month needs to be considered.

Use of Loan Payment Formula

A loan payment formula can be used to calculate any type of conventional loan, i.e. mortgage, consumer loans, personal loans or business loans.

Disadvantages of Loan Payment Formula

·         The biggest disadvantage of using loan payment formula is that they are not easy to remember.

·         Calculations can also be tricky for those who are not well versed with maths.

·         Complex formula can take a long time to calculate and get a value.

·         Any small error during calculation could give a wrong payment amount, which could see one paying more than the actual payment needed.

Online Loan Payment Calculators

Manual loan calculations might not be feasible in today’s fast paced world, which is where online loan payment calculations come in handy. Almost all banks have online loan payment calculators in their websites.

Here’s a simple step by step procedure to calculate your loan payment amount online.

Step 1. Log onto any banking/loan calculation website.

Step 2. Enter the loan amount.

Step 3. Enter the rate of interest.

Step 4. Mention the period of loan (months/years).    

Step 5. Click the calculate button.

Advantages of Online Loan Payment Calculators

·         Fast - the time required to calculate loan payment amount is extremely less.

·         Easy – there is no mental calculation required and the process is easy and simple.

·         Less errors – Online calculation ensures human error is reduced to minimum.

So feel free to do the math and calculate your loan payment amount with online loan calculator without the help of a banking agent.