Loan Calculator

How to use the loan calculator?

First enter the amount of the loan (principal) – this is how much credit you intend to take, then enter the nominal annual interest rate (APR, non-compounded rate) as well as the compounding period (usually monthly).

Proceed to enter the loan term (duration) pay back period which usually, but not always coincides with the compounding period.

The loan calculator will output the pay back amount, the total payment over the entire loan term as well as the total accrued interest rate. Note that it doesn’t take into account fees for servicing the loan which would vary depending on the financial institution and your particular loan contract. The calculator can be used for most mortgage loans, car loans, student loans and personal loans popular on the market.

The tool currently does not output a full amortization schedule, but let us know if you’d find it useful by dropping us an e-mail or commenting on our Facebook or Twitter (@gigacalculator).

 The mathematics of loan pay back

In most circumstances you would want to pay back your loan as it compounds the interest rate. Compounding means that the accrued interest rate is added to the principal and will accrue interest on its own in the next compounding period. For example, if your loan compounds monthly and you only pay it once a year you will be paying interest on the interest, slightly increasing the cost of the loan compared to making monthly payments.

Initially a big proportion of the payments you make go into covering the interest rate which is quite high initially: for example, 5% interest on a $50,000 loan equals $208.33 during the first month of repaying your loan but it only equals $117.09 by the beginning of year 5 of repaying a 10-year loan. Hence initially only a small portion of your payments cover the principal. The more you move towards the maturity date the more your payments will pay for the principal. This is why it is usually riskier to fall back on payments in the first years of a long-term loan rather than to have such issues further in the loan term.

Our loan calculator is a tool to help you assess the necessary financial resources you need to properly service your loan.

 Loan basics for money borrowers

The following terms are encountered when one considers applying to different types of loans supported by our calculator, including mortgages, home equity loans, auto loans, student loans, and personal loans.

Secured versus unsecured loans

There are two types of loans depending on whether the borrowing party is required to put up an asset as collateral against the loan or not. A secured loan is a collateralized one whereas an unsecured loan is uncollateralized. Mortgages and auto loans are examples of secured loans since failure to meet the repayment schedule may result, in the end, in the repossession of the car or the mortgaged property to the lender. Personal loans usually require no collateral and are thus unsecured meaning that the lending institution will take a loss in case of borrower insolvency. Such loans are usually ensured at higher premiums as well.

What is an interest rate?

The interest rate is a percentage by which the loan amount increases during each compounding period. It is usually presented in loan offers as a nominal annual rate called “APR”. For most loans one repays a part of the principal on top of whatever interest is owed. The lower the interest rate the better it is for the borrower, all other things being equal.

Fixed versus variable interest rate

The interest rate on a loan can be fixed for its entire term or it can vary during its repayment period. Some loan offers include an initial period of a fixed rate followed by a period in which the interest rate varies depending on some financial index or other metric. Variable rate loans usually offer better initial terms but may result in significantly higher rates in certain economic conditions. Fixed rate ones are usually short term. When they are for a longer period they may result in both lower or higher than market rates, depending on money market cycles.

What is a loan term?

A loan’s term is the time duration during which it should be fully repaid with interest, if repayments commence on schedule. Generally loans for larger amounts of money come with longer terms, e.g. a personal loan for $5,000 may have a one year term whereas a mortgage would typically have a term between five years and thirty years. A longer term loan typically results in a greater amount of interest to be paid in total, but the pay backs come in smaller installments. Whether a longer term loan is preferable to a shorter term one is a personal calculation as it depends on the personal financial situation and preferences of the borrower.

What is compounding frequency?

The compounding frequency refers to how often interest is accumulated on the loan and directly affects repayment calculations. Since interest is paid not only on the principal but also on the interest accumulated from previous periods the more frequent the compounding, the higher the total interest to be paid. Most loans compound monthly, but some do so yearly or just once (at the end) such as with bonds. Note that the repayment frequency can differ from the compounding frequency.

Financial caution

This is a simple software which is a good starting point in estimating the pay back amounts and total interest that you can expect to accrue on a loan if you are able to follow the payment schedule but is by no means the end of such a process. Crucially, its accuracy depends on the accuracy of your input which is a prognosis in itself and thus carries uncertainty and risk. You should always consult a qualified professional when making important financial decisions and long-term agreements, such as long-term mortgages, education loans, car loans, etc. Use the information provided by the calculator critically and at your own risk.