How to Calculate a Loan's Value When No Payments Are Made

Loans are made for various purposes and with varying terms. An amortized loan is the most common type for a home or auto. It is designed to repay the loan and interest in a set period of time, with a set monthly payment based on the loan principal and interest rate. The value of an unpaid loan is calculated by adding the interest and late fees to the original principal amount of the loan.

Instructions

1

Determine the current balance of the loan amount. This balance is the sum total of the previous principal balance, and the unpaid interest and penalties added on top. For instance, a $1,000 loan compounded on a simple yearly basis with a 6 percent interest rate and a monthly late payment fee of $10 that had no payments made in the first year, would come to $1,180. That breaks down to the original $1,000 principal balance, $60 in unpaid interest and $120 in late fees accumulated over 12 months. However, most loans are more compounded on a monthly basis, so the new monthly balance is used to calculate the unpaid interest. Proceed to step 2 to determine how to calculate the loan value on a monthly basis.

2

Calculate the growing interest monthly by taking the balance determined in step 1 and dividing the interest rate by 12. A 6 percent annual interest rate would equal .5 percent in interest per month. Multiply the principal by the monthly interest rate and determine the interest due. For instance, a .5 percent monthly interest payment on a $1,000 loan would come to $5 a month in interest. This will give you the new principal balance before late fees are added.

3

Add the late fee to the new principal amount of the loan. As in step 1, if the late fee is $10 a month, the new principal balance would be equal to the original $1,000 balance, the $5 in unpaid interest, and the $10 late fee -- making the new principal balance for the next month $1,015.

4

Calculate the subsequent loan value by using the previous month's ending principal balance, and again adding in the monthly interest and late fees on top of this balance. In this manner, a present loan value can be determined, and also what the balance will be in the future if no more payments are made.