A simple loan repayment calculator helps individuals and businesses estimate the recurring cost of borrowing money. When you take out a loan, you typically agree to repay the principal amount borrowed, plus interest, over a specified period. The most common way to structure these repayments is through regular installments, often monthly. This calculator uses a standard formula to provide an estimate of what your monthly payment might be.
How the Calculation Works
The formula used by this calculator is derived from the standard annuity payment formula, which is widely accepted in finance for calculating fixed periodic payments. The formula for the monthly payment (M) is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
P = Principal loan amount (the total amount borrowed).
i = Monthly interest rate. This is calculated by dividing the annual interest rate by 12. For example, a 5% annual rate becomes 0.05 / 12.
n = Total number of payments. This is calculated by multiplying the loan term in years by 12. For a 5-year loan, there would be 5 * 12 = 60 payments.
The calculator takes your inputs for the Loan Amount, Annual Interest Rate, and Loan Term in Years, converts them into the required values for P, i, and n, and then applies this formula to output your estimated monthly repayment.
Use Cases and Importance
This calculator is invaluable for:
Budgeting: Understanding the monthly financial commitment before taking out a loan (e.g., for a car, personal expenses, or a small business).
Loan Comparison: Comparing different loan offers from various lenders by inputting the same loan details to see which has the most favorable monthly payment.
Financial Planning: Assessing affordability and planning repayment strategies.
Debt Management: Estimating how much you can borrow based on your current budget and repayment capacity.
Keep in mind that this is a simplified calculator. Actual loan payments may vary slightly due to factors such as lender fees, specific amortization schedules, or different calculation methods employed by financial institutions. Always consult with your lender for an exact repayment quote.
function calculateRepayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var monthlyPaymentDiv = document.getElementById("monthlyPayment");
// Input validation
if (isNaN(loanAmount) || loanAmount <= 0) {
alert("Please enter a valid loan amount greater than zero.");
monthlyPaymentDiv.innerText = "Error";
return;
}
if (isNaN(annualInterestRate) || annualInterestRate < 0) {
alert("Please enter a valid annual interest rate (0% or greater).");
monthlyPaymentDiv.innerText = "Error";
return;
}
if (isNaN(loanTermYears) || loanTermYears <= 0) {
alert("Please enter a valid loan term in years (greater than zero).");
monthlyPaymentDiv.innerText = "Error";
return;
}
// Calculate monthly interest rate
var monthlyInterestRate = annualInterestRate / 100 / 12;
// Calculate total number of payments
var numberOfPayments = loanTermYears * 12;
var monthlyPayment = 0;
// Handle case where interest rate is 0%
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / numberOfPayments;
} else {
// Calculate monthly payment using the annuity formula
monthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
}
// Display the result, formatted to two decimal places
monthlyPaymentDiv.innerText = "$" + monthlyPayment.toFixed(2);
}