Securing a business loan is a significant step for growth, expansion, or managing cash flow. Understanding how loan payments are calculated is crucial for effective financial planning. This calculator helps you estimate your business loan's monthly payments, total repayment amount, and the total interest you'll accrue over the loan's life.
How the Calculation Works:
The calculation for loan payments is based on the annuity formula, which determines the fixed periodic payment required to fully amortize a loan over a specified period. The formula accounts for the principal amount, the interest rate, and the loan term.
The standard formula for calculating the periodic payment (P) of a loan is:
P = [r * (1 + r)^n] / [(1 + r)^n – 1] * L
Where:
L = Loan Amount (the principal)
r = Periodic Interest Rate (Annual Interest Rate / Number of Payments per Year)
n = Total Number of Payments (Loan Term in Years * Number of Payments per Year)
Let's break down the inputs:
Loan Amount: This is the total sum of money you are borrowing from the lender.
Annual Interest Rate: This is the yearly rate charged by the lender. For calculation, it's converted into a periodic rate by dividing by the number of payment periods in a year.
Loan Term (Years): The total duration over which the loan is to be repaid.
Payment Frequency: This determines how often you'll make payments (e.g., monthly, quarterly, annually). A higher frequency generally leads to slightly less total interest paid over time due to more frequent principal reduction, although the payment amount will be smaller.
Interpreting the Results:
Monthly Payment: This is the fixed amount you will pay each period. This calculator shows the equivalent monthly payment for easier budgeting, even if your loan has a different payment frequency (e.g., quarterly). The calculator calculates the payment for the selected frequency and then scales it to a monthly equivalent for display.
Total Payments: This is the sum of all payments made over the entire loan term, including both principal and interest. It is calculated as Periodic Payment * Total Number of Payments.
Total Interest Paid: This is the difference between the Total Payments and the Loan Amount. It represents the cost of borrowing the money.
Common Business Loan Uses:
Starting a new business
Purchasing inventory or equipment
Expanding operations
Working capital to cover operational expenses
Refinancing existing debt
Real estate purchases for the business
Using this calculator can help you compare different loan offers, assess affordability, and plan your business finances more effectively. Remember that this is an estimate; actual loan terms and calculations may vary based on lender policies, fees, and specific loan agreements.
function calculateLoan() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseInt(document.getElementById("loanTermYears").value);
var paymentFrequency = parseInt(document.getElementById("paymentFrequency").value);
var resultMonthlyPaymentSpan = document.getElementById("result-monthly-payment");
var resultTotalPaymentSpan = document.getElementById("result-total-payment");
var resultTotalInterestSpan = document.getElementById("result-total-interest");
// Clear previous results
resultMonthlyPaymentSpan.textContent = "$0.00";
resultTotalPaymentSpan.textContent = "$0.00";
resultTotalInterestSpan.textContent = "$0.00";
// Input validation
if (isNaN(loanAmount) || isNaN(annualInterestRate) || isNaN(loanTermYears) || isNaN(paymentFrequency) ||
loanAmount <= 0 || annualInterestRate < 0 || loanTermYears <= 0 || paymentFrequency 0) {
monthlyPayment = (loanAmount * periodicInterestRate * Math.pow(1 + periodicInterestRate, totalPayments)) / (Math.pow(1 + periodicInterestRate, totalPayments) – 1);
} else {
// If interest rate is 0, payment is simply principal divided by total payments
monthlyPayment = loanAmount / totalPayments;
}
// Calculate total payments and total interest
var totalPayment = monthlyPayment * totalPayments;
var totalInterest = totalPayment – loanAmount;
// Display results, formatted as currency
resultMonthlyPaymentSpan.textContent = "$" + monthlyPayment.toFixed(2);
resultTotalPaymentSpan.textContent = "$" + totalPayment.toFixed(2);
resultTotalInterestSpan.textContent = "$" + totalInterest.toFixed(2);
}