Understanding Term Loans and How This Calculator Works
A term loan is a financial agreement where a borrower receives a lump sum of money from a lender and agrees to repay it over a specified period (the term) with a fixed or variable interest rate. These loans are commonly used for business expansion, equipment purchases, real estate financing, or personal expenses. Unlike lines of credit, term loans are typically disbursed in full at the outset.
Key Components of a Term Loan:
Principal Amount: The initial sum of money borrowed.
Interest Rate: The cost of borrowing the money, expressed as a percentage of the principal. This can be fixed for the life of the loan or variable, changing with market conditions.
Loan Term: The duration over which the loan is to be repaid, usually expressed in months or years.
Monthly Payment: The fixed amount paid by the borrower to the lender each month, which includes both a portion of the principal and the interest accrued.
How the Term Loan Calculator Works:
This calculator uses a standard loan amortization formula to determine the fixed monthly payment for a term loan. The formula is derived from the present value of an annuity formula, ensuring that the total of all payments equals the principal plus all accrued interest over the loan's term.
The formula for calculating the monthly payment (M) is:
Total Number of Payments (n) = 5 Years * 12 Months/Year = 60
Now, plug these values into the formula:
M = 20000 [ 0.0058333(1 + 0.0058333)^60 ] / [ (1 + 0.0058333)^60 – 1]
M = 20000 [ 0.0058333 * (1.417625) ] / [ (1.417625) – 1]
M = 20000 [ 0.0082678 ] / [ 0.417625 ]
M = 20000 * 0.019797
M ≈ $395.94
So, the estimated monthly payment for this term loan would be approximately $395.94. The calculator also computes the total interest paid ($395.94 * 60 – $20,000 = $3,756.40) and the total repayment amount ($20,000 + $3,756.40 = $23,756.40).
Why Use a Term Loan Calculator?
This calculator is an invaluable tool for financial planning. It helps individuals and businesses:
Budget effectively: Understand the precise monthly financial commitment.
Compare loan offers: Easily see how different interest rates or terms affect your payments.
Determine affordability: Ensure you can comfortably manage the loan repayments before committing.
Visualize loan costs: Get a clear picture of the total interest paid over the life of the loan.
By providing accurate and immediate results, this tool empowers informed decision-making when considering term loan options.
function calculateTermLoan() {
var principal = parseFloat(document.getElementById("loanAmount").value);
var annualRate = parseFloat(document.getElementById("annualInterestRate").value);
var years = parseFloat(document.getElementById("loanTermYears").value);
var resultDiv = document.getElementById("result");
var finalAmountDiv = resultDiv.querySelector(".final-amount");
var totalInterestSpan = document.getElementById("totalInterest");
var totalRepaymentSpan = document.getElementById("totalRepayment");
// Clear previous results and error messages
finalAmountDiv.textContent = "$0.00";
totalInterestSpan.textContent = "–";
totalRepaymentSpan.textContent = "–";
if (isNaN(principal) || principal <= 0) {
finalAmountDiv.textContent = "Invalid Principal";
return;
}
if (isNaN(annualRate) || annualRate < 0) {
finalAmountDiv.textContent = "Invalid Rate";
return;
}
if (isNaN(years) || years <= 0) {
finalAmountDiv.textContent = "Invalid Term";
return;
}
var monthlyRate = (annualRate / 100) / 12;
var numberOfPayments = years * 12;
var monthlyPayment = 0;
if (monthlyRate === 0) {
// Handle case where interest rate is 0%
monthlyPayment = principal / numberOfPayments;
} else {
monthlyPayment = principal * (monthlyRate * Math.pow(1 + monthlyRate, numberOfPayments)) / (Math.pow(1 + monthlyRate, numberOfPayments) – 1);
}
var totalRepayment = monthlyPayment * numberOfPayments;
var totalInterest = totalRepayment – principal;
// Format the currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2,
maximumFractionDigits: 2
});
finalAmountDiv.textContent = formatter.format(monthlyPayment);
totalInterestSpan.textContent = formatter.format(totalInterest);
totalRepaymentSpan.textContent = formatter.format(totalRepayment);
}