Find the repayment amount or length of debts, such as credit cards, mortgages, auto loans, and personal loans. It can be used for both ongoing debts and new loans.
Repayment is the act of paying back money previously borrowed from a lender. Failure to repay debt can potentially force a person to declare bankruptcy and/or severely affect their credit rating. The repayments of consumer loans are usually made in periodic payments that include some principal and interest.
In this calculator, there are two repayment schedules to choose from:
Choose this option to enter a fixed loan term. For instance, the calculator can be used to determine whether a 15-year or 30-year mortgage makes more sense—a common decision most people have to make when purchasing a house. The calculated results will display the installment required to pay off the loan within the specified loan term.
Choose this option to enter a fixed amount to be paid each period until the loan and interest are paid in full. The calculated results will display the loan term required to pay off the loan at this installment. For instance, this may be a set amount of disposable income determined by subtracting expenses from income that can be used to pay back a credit card balance.
In the U.S., most consumer loans are set to be repaid monthly. The following are four of the most common loans:
Mortgages: In the U.S., mortgages are required to be repaid monthly using fixed or variable rates, or even switched from one to the other during the life of the loan. For fixed-rate mortgages, the monthly repayment amount is fixed throughout the loan term. Borrowers can choose to pay more (but not less) than the required repayment amount.
Auto Loan: Like mortgage loans, auto loans need to be repaid monthly, usually at fixed interest rates. Borrowers can also choose to pay more (but not less) than the required repayment amount.
Student Loans: In the United States, the government offers specialized plans geared specifically towards the repayment of federal student loans. Depending on the individual borrower, there are repayment plans that are income-based, plans that extend the term of the loan, or plans specifically for parents or graduate students.
Credit Cards: Credit card loans are considered revolving credit. The repayment of credit cards is different from typically structured amortized loans. Whereas the latter requires a set amount to be paid a month, the repayment of revolving credit is more flexible in that the amount can vary, though there is a minimum payment due on each credit card each month that must be met to avoid penalty.
Most people like the feeling of being debt-free. Listed below are some of the strategies to repay loans faster.
Pay Extra: If there is no prepayment penalty involved, any extra money going towards a loan will be used to lower the principal amount due. This will speed up the time in which the principal due finally reaches zero and reduces the amount of interest due because of the smaller principal amount that is owed.
Biweekly Payments: For loans that require monthly repayments, submitting half of the monthly payment every two weeks instead of one monthly payment can speed up the repayment of loans in two ways. Firstly, less total interest will accrue because payments will lower the principal balance more often. Secondly, biweekly payments for a whole year will equal 26 yearly payments because there are 52 weeks in a year. This is equivalent to making 13 monthly payments a year. Before making biweekly payments, make sure there are no prepayment penalties involved.
Refinance: Loan refinancing involves taking out a new loan, often with more favorable terms, to replace an existing loan. Borrowers can refinance their loans to shorter terms to repay the loans faster and save on interest. However, borrowers normally need to pay refinancing fees upfront. These fees can be very high. Be sure to evaluate the pros and cons before making the refinancing decision.
Q: What is the difference between APR and APY?
A: APR (Annual Percentage Rate) is the nominal annual rate, while APY (Annual Percentage Yield) takes compounding into account. If compounding is more frequent than annually, APY will be higher than APR. This calculator uses the compound frequency you select to properly calculate the effective rate.
Q: What happens if I pay more than the required installment?
A: Paying extra reduces the principal faster, which means you'll pay less interest over the life of the loan and finish paying it off sooner. Just make sure there's no prepayment penalty.
Q: How does compounding frequency affect my loan?
A: More frequent compounding means interest is added to the balance more often, which increases the effective interest rate. For example, 10% compounded monthly is effectively higher than 10% compounded annually.
Q: Can I use this calculator for any currency?
A: Yes! The calculator works with any currency. Just ignore the "$" signs and use your local currency values.
Q: Is prepaying my loan always a good idea?
A: Not always. While making extra payments can save on interest, there are opportunity costs to consider. For instance, an emergency fund can come in handy when incidents like medical emergencies or car accidents happen. Even stocks that perform well during good years may be more financially beneficial than extra payments towards a low-interest loan.