A financial calculator is a type of calculator specifically designed to compute financial data associated with money, investments, interest and returns. Financial calculators have predetermined mathematical function keys that speed up the financial calculation process.
A financial calculator can be a hand-held calculator, or it can be an online calculator program. There are financial calculators that are dedicated to specific functions as well as financial calculators that provide the full range of necessary financial calculations. One of the most common types of financial calculators is the loan calculator.
Common financial calculators provide information on:
Financial calculators can run calculations that provide the current and future value of an investment. For example, you have a savings account that pays you five percent per year on a current balance of $500 at the end of 10 years. The present value is $500 and the future value is the amount accrued over 10 years and a five percent annual return.
In this example, the future value is $814.45. The difference between present and future value is called the time value of money.
Another use for financial calculators is to determine the monthly payment on a loan. A loan has four basic mathematical features: the term of the loan, the interest rate, the principal amount and the payment.
With any three of these four loan variables available, the fourth can be calculated.
For example, if you know that there are 120 monthly payments in your 10-year loan, an interest rate of eight percent and a loan amount of $10,000, your financial calculator can quickly find the loan’s monthly payment. In this example, the monthly payment is $121.33 as determined by the financial calculator.
Bond valuations can also be determined with a financial calculation. A bond is a security instrument that promises to pay a predetermined amount at a predetermined time. A bond’s initial present value will be lower than the final amount based upon the interest associated with the bond.
Financial calculators can also help anticipate returns on various annuities and other investments. Annuities are a form of an investment that provides a constant cash flow as income for a predetermined period of time. By knowing the interest rate, or yield for the annuity, the present value and the number of payments a financial calculator will provide the annuities’ future value over time.
Financial calculators can run hundreds of complex financial calculations to help consumers better understand their investments and their overall financial profile – while also providing calculations as simple as a car loan payment. Best of all, financial calculator can produce such calculations much more efficiently than a standard mathematical calculator.
Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.