Overview

Main Menu Name: Loan Term

Calculates the term of a loan and the repayment period, for two different monthly payment amounts, given the loan balance and interest rate, and also calculates the difference in the repayment periods in months.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

Consumer borrowing has become one of the most important dimensions of personal financial planning. Using credit wisely can be just as important to an individual's financial security as saving for retirement or having the right insurance coverage. Evaluating credit terms can be a complex problem involving the amount borrowed, the interest rate to be paid, and the term of the loan.

Representatives can assist clients with their borrowing decisions by analyzing the effect of making larger or smaller payments on a loan. Generally, making even slightly larger payments can shorten the term of the loan and substantially reduce the total interest paid on the loan.

Why should I use this calculator?

• Evaluate alternative loan arrangements based on their impact on loan term and payment schedule.
• Measure the impact of increasing or decreasing the monthly payment on a loan.
• Select the most effective payment amounts to help schedule multiple loan repayments.
• Calculate the impact of different interest rates on loan payment amounts and loan terms.
• Calculate the monthly payments and loan terms for different amounts of loan principal.

Getting Started

Consumer borrowing has become one of the most important dimensions of personal financial planning. Using credit wisely can be just as important to an individual's financial security as saving for retirement or having the right insurance coverage. Evaluating credit terms can be a complex problem involving the amount borrowed, the interest rate to be paid, and the term of the loan.

Financial planners can assist clients with their borrowing decisions by analyzing the effect of making larger or smaller payments on a loan. Generally, making even slightly larger payments can shorten the term of the loan and substantially reduce the total interest paid on the loan.

Entering Data

1. Principal Balance Outstanding:  Enter the principal amount balance outstanding.
2. Loan Interest Rate:  Enter the interest rate on the loan.
3. Current Monthly Payment:  Enter the current monthly payment.
4. Projected Monthly Payment:  Enter the projected monthly payment.

Results

The program calculates the loan term (in months) based on the current as well as the projected monthly payment. It also calculates the increase or decrease in loan term depending on whether a smaller or larger payment is to be made, and the interest savings realized from making larger monthly payments on the loan.