How to make loan calculations?

There may come a time when you require money immediately, but you will not be in a position to mobilize the required money. Under the circumstances, you will have no other alternative but to go in for a loan. When you decide to take a loan, it will be good for you to know, before hand, as to the total cost of the loan you are going to avail. How do you get this figure? You collect offers of loans from different sources which will include rates of interest, payment terms, etc. Based on the amount of loan you need, you can work out the total cost of the loan. After analyzing the details gathered from various sources, you can take a decision in the matter.

Online calculators are helpful to make the calculations

When you decide to take a loan, it will be better for you to work out the loan calculation yourself. It is only then you will get to know every detail connected with the loan. Thus you become fully acquainted with the whole aspects of the loan. And you have full knowledge about the payments to be made every month and for how long. The over-all cost of the loan, including interest payments, fees, if any, will be clear to you. In case you feel it necessary, you will do well to make the required changes in some of the loan calculation components.

What is the need for a loan calculation, some people may be wondering. It is most important for you to have full and detailed information regarding the cost of the loan which you are going to avail. This will give you a clear idea in the matter of monthly outgo, duration of the loan period, penal fees, if any, for delayed payment and/or foreclosure. As said earlier, if there is any need, some of the loan calculation components could be changed. Some changes, effected thus, are likely to bring a total difference in the outcome.

loan calculations

How will you calculate the cost of a loan?

For any loan, there will be some interest payable on the principal amount plus some sort of fees. These things will be clearly mentioned in the loan offers. However, in case you find it difficult to get a clear idea of the details concerning the loan offer, you can do the calculation yourself, taking each item one by one. For this purpose, you may apply the usual formula. However, if necessary, you can make use of an online calculator. You need not consider those loan offers which indicate lower interest rates with ‘no fees’ or ‘very little fee’, as the best available in the market. The fact may be different. You better consider all other aspects and take a decision in the matter of choosing the ideal offer.

A loan taken is repaid in two ways. One way is, you pay only interest every month until you repay the loan amount in full – a one- time payment. If you choose to go along this way, you have a clear idea as to the amount required for the monthly payments, till the loan is repaid. The second way is this: you choose to pay a certain amount of money every month which will include a part of the principal amount too apart from the interest amount. This type of payment is known as ‘amortization.’  If you choose this method and, after a certain period of time, if you are eager to find out how much of the principal amount you have paid back, you will get the ‘shock’ of your life. Large portion of the amounts you have paid would have been adjusted against interest, leaving the principal balance almost at the same level!