A loan calculator is basically a computer program that allows users to determine key figures for the proposed installment loan. Loan calculators are especially useful for individuals considering mortgage financing, personal loans or other types of consumer loans.
Depending on how it is set up or which functions are selected, a loan calculator can determine the following loan amortization elements:
All of the above four elements, and their associated variations, are based on the same basic amortization formula:
In this formula:
The above formula solves for the monthly payment. By rearranging this basic equation, we can solve for the principal amount, interest rate or number of payment periods. Regardless of which of the four elements you wish to solve four, you will need the other three elements to complete the calculation.
To calculate the: | Monthly Payment | Principal Amount | Interest Rate | Periods in Amortization |
---|---|---|---|---|
You will need the: | Principal Amount | Monthly Payment | Monthly Payment | Monthly Payment |
Interest Rate | Interest Rate | Principal Amount | Principal Amount | |
Periods in Amortization | Periods in Amortization | Periods in Amortization |
The above formula can be used by anyone to calculate loan figures. A loan calculator, on the other hand, allows user to calculate loan figures more quickly and efficiently.
Until the widespread rise of the web, many in the financial industry relied on handheld loan calculators to calculate loan figures. Today, the loan amortization function is built into most computer spreadsheets, and many financial websites have online loan calculators that visitors can freely use to make calculations and even create full amortization schedules.
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.
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