The loan payment calculator allows users to determine the principal and interest payment each month until the full balance of the loan is paid off. This template focuses on calculating the payment plan for amortizing loans. It will show the monthly payment borrowers are required to pay depending on the loan amount and other factors.
Overview of Loans
Loans/mortgages are split into different categories depending on the payment plan and interest rate. Interest rate is the amount of interest accumulated throughout the life of the loan. For example, if the loan is $10,000 and the interest rate is 5%, then each year there will be $500 in interest. Interest payment depends on the amount of principal payment remaining. The other defining factor of loans is payment plans which are seperated into amortizing or non-amortizing.
Amortizing loans is where the principal payment is paid off over the life of the loan. If the amortizing period is five years, then the principal balance will be zero at the end of five years. If payments are made monthly, then each month the payment will include interest and principal. Usually, for amortizing loans, the amount paid each month remains the same. However, the ratio of interest and principal changes over time. At the beginning of the period, the majority of the payment will consist of interest payments due to a large amount of principal balance. Over time, the payment will mostly go toward paying off the principal.
Non-amortizing loans are where the borrower only pays interest payments during the beginning of the loan term. This means the principal value of the loan does not decrease over time. Instead, the principal payment is paid when the loan term ends.
How does the loan payment calculator help?
The loan payment calculator will help people understand how loans are structured. By changing the amortization period, interest rate, and the number of payments, it allows people to see the monthly payment required for the loan. This template will also help borrowers see the total amount of interest payment they pay over the lifetime of the loan.