Installment loan calculators are free tools offered by lending institutions to calculate monthly payments for different types of loans. These calculators factor in the principal, interest and term of the loan so that the borrower can try different amounts to find the monthly payment that fits their budget.
Function
Consumers interested in purchasing a vehicle or other large investment may need to obtain a loan to finance the purchase. Installment loans allow consumers to borrow a principal amount with interest, and pay the loan back over a specific period of time. Since borrowers are responsible for making a monthly payment, they will need to make sure they can afford the loan amount with the proposed interest rates. Installment loan calculators make this easy, by allowing the borrower to enter in the loan amount, interest rate and loan term to find out how much they will be paying each month. These calculators are available online, and may also be used by lenders during a face-to-face meeting at a financial institution.
Types
Online installment loan calculators can be found on several financial institution websites. All of the calculators perform the same function, and users can enter in different amounts for the loan and interest rate to compare different loan products or options. The loan calculator is often the first step of the online loan application process.
Monthly Payment Formula
The actual formula for calculating monthly payments involves taking the loan amount divided by the term of the loan (A) and the annual interest divided by 12 (B). A multiplied by B gives the total monthly payment needed to pay off the loan in full. This calculation is often used to determine monthly payments for cars, trucks, SUVs, boats, motorcycles and other vehicles.
Benefits
The installment loan calculation allows consumers and loan providers to perform the monthly payment loan calculation within seconds. Using the calculator before applying for a loan can make it easier to determine what types of loans a consumer may be eligible for, what the monthly payment may be for a specific purchase and if the loan is the best way to complete the purchase.
Considerations
Online installment loan calculators only provide a rough estimate of the monthly payment for a certain loan--rates, terms and payments are not guaranteed. The monthly payment amount will not take into account other information such as loan processing fees, payment fees and other surcharges that the financial institution may impose on the borrower. Borrowers will need to speak with the lender in person or over the phone, and review the official contract or document about the terms of the loan for the most accurate information.
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