How to Calculate Loan Repayments

When you apply for a loan, or are just browsing various sites for price comparisons, you can use loan calculators to determine what your monthly repayments will be. You’d have to be mad or eccentric to personally want to do the mathematics required to work out the payments when there are ready-made easy to use tools already available to you.

Using lenders’ loan calculators:
If you go to the website of your chosen bank, the chances are that they will have an online loan calculator. All you need to do is enter the following details:

– How much you want to borrow. There will normally be a minimum and maximum allowed amount.

– The term. This is just over how many years you want to repay the loan.

– Whether you want to take out the optional loan protection insurance. There’s usually a tick box that you can mark if you do want the insurance.

– Which loan you’re interested in. If the bank offers more than one loan, they may ask you to select the one that you’re interested in. This will normally be by means of a drop down box. In some cases, they may also ask you to manually enter the relevant interest rate but this is quite rare these days.

Having entered these details, all you need to do is hit the submit button and it will bring back a quote showing how much your monthly payments would be. You can do a quote both with and without the loan insurance, which will tell you how much extra the insurance element would cost.

Note: If you go into a bank branch, the member of staff will be able to take you through a similar quote and should be able to give you a print out of the quote.

When you actually go to apply for a loan, you should receive a formal loan quote as part of the loan application and you will also be presented with all relevant legal information.

Working out the monthly repayments for yourself:
If you don’t trust the lender’s calculator or just happen to be interested in calculations and equations, then you could create your own loan calculator, using Excel for example.

Again, the relevant inputs that you need to build into your makeshift calculator are:

– Amount
– Term
– Interest rate

You will then need to plot out all the months (from the term) and have rows covering the outstanding capital amount, the monthly repayment amount and the interest that will be added onto the capital. The way to test whether you have set up the calculations properly would be to compare against one of the bank’s website calculators.