Types of Loan Payment Calculations
Before you start, you need to know what type of loan you’re using. Loan payment calculations are only correct if your inputs are correct. Some loans are interest only loans, where you don’t pay off the loan - you only 'service' it by paying interest. Other loans are amortizing loans, where you pay off the loan balance over time.
If you don’t want to do loan payment calculations manually, use one of these calculators:
Any loan payment calculations you do on your own or with an online calculator should be considered rough estimates. Your lender may use different numbers based on different assumptions.
Amortizing Loan Payment Calculation - Formulas
To do loan payment calculations on your own, use the formula below.
Loan Payment = Amount / Discount Factor
or
P = A / D
You’ll need the following values of the loan payment calculation:
- Number of Periodic Payments (n) = Payments per year times number of years
- Periodic Interest Rate (i) = Annual rate divided by number of payments per
- Discount Factor (D) = {[(1 + i) ^n] - 1} / [i(1 + i)^n]
Sample Loan Payment Calculation
Assume you borrow $100,000 at 6% for 30 years to be repaid monthly. What is the monthly payment?
- n = 360 (30 years times 12 monthly payments per year)
- i = .005 (6% expressed as .06 divided by 12 payments per year)
- D = 166.7916 ({[(1+.005)^360] - 1} / [.005(1+.005)^360])
- P = A / D = 100,000 / 166.7916 = 599.55
Interest Only Loan Payment Calculation - Formula
The loan payment calculation for an interest only loan is easier. Multiply the amount you borrow by the annual interest rate. Then divide by the number of payments per year.
Example (using the same loan as above): $100,000 times .06 = $6,000 per year of interest. 6000 divided by 12 equals $500 monthly payments.
Check your math with the Interest Only Calculator.
