Loan interest calculations: How to go about it

When you take out a mortgage or a personal loan, you will have to repay it as well. And when you repay the loan or the mortgage, you will have to pay interest on the amount borrowed. This makes the loan or the mortgage costlier. Unless you know what your mortgage interest payments will be like, it will be difficult for you to know what your monthly mortgage payments will be. Thus, you will not be able to know whether or not you will be able to afford the loans with no credit check. So, it is very important that you know how to calculate your loan interest payments. Once you know your monthly interest payments, you will be able to formulate a budget and manage your finances well.

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Calculating loan interest costs

You can calculate the loan interest costs on your own. If you do the calculations on your own, it will give you a better idea of how things work. In order to better understand how the interest costs are going to work, it will be better for you to build the amortization table. This will help you track each and every payment you make and you will be able to know how much interest you will be paying over the time.

Lets take an example. Lets say that you borrow $100,000 at 6% for a term of 30 years. The loan has to be repaid monthly.

Thus, you will have to calculate what you need to pay on a monthly basis toward the interest. As you set up an amortization schedule, you will be able to note that with time, your interest payments will get lowered. In case of the first 3 payments, the total interest paid will be somewhere around $1,498.50 ($500 + $499.50 + $499). Here you should note one thing that in the beginning of your loan payments, most of the amount will go toward the interest payment. Once you pay your loans with bad credit for the few months, then the payments will be used more and more to pay off your principal balance.

Steps to calculate the loan interest on your own

Here are some steps which will help you to calculate the loan interest on your own. Lets take a look:

Get hold of all the details of your loan like the principal balance, loan term, interest rate, etc.

Divide annual interest rate by 12 (the number of times interest is accrued over the loan in a year).

In the third step, you will have to multiply the total balance owed by the periodic rate of interest.

Use Microsoft Excel to calculate the total interest payment and total balance for the loan.

In the final step, multiply the payment by the term period in the loan and then subtract the principal amount from the total payments. This will help you know the total interest payments.

In case you feel that you will not be able to calculate it manually, you can use an online calculator for the same. You will have to put in all the required details in the calculator and it will calculate the interest payments for you.

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Posted in Financial Services Post Date 11/06/2020






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