function calculateReverseLoan() {
var paymentInput = document.getElementById('rlc-payment');
var rateInput = document.getElementById('rlc-rate');
var yearsInput = document.getElementById('rlc-years');
var downInput = document.getElementById('rlc-down');
var resultsDiv = document.getElementById('rlc-results');
var monthlyPayment = parseFloat(paymentInput.value);
var annualRate = parseFloat(rateInput.value);
var years = parseFloat(yearsInput.value);
var downPayment = parseFloat(downInput.value);
// Default down payment to 0 if empty or NaN
if (isNaN(downPayment)) {
downPayment = 0;
}
if (isNaN(monthlyPayment) || isNaN(annualRate) || isNaN(years) || monthlyPayment <= 0 || years <= 0) {
alert("Please enter valid positive numbers for Payment, Rate, and Term.");
return;
}
var loanAmount = 0;
var totalInterest = 0;
// Logic handling
if (annualRate === 0) {
// Simple calculation if interest is 0%
var months = years * 12;
loanAmount = monthlyPayment * months;
totalInterest = 0;
} else {
// Amortization Reverse Formula
// PV = P * (1 – (1+r)^-n) / r
var r = (annualRate / 100) / 12; // Monthly interest rate
var n = years * 12; // Total number of payments
loanAmount = (monthlyPayment * (1 – Math.pow(1 + r, -n))) / r;
var totalPayments = monthlyPayment * n;
totalInterest = totalPayments – loanAmount;
}
var totalBuyingPower = loanAmount + downPayment;
// Formatting currency
var formatter = new Intl.NumberFormat('en-US', {
style: 'currency',
currency: 'USD',
minimumFractionDigits: 2
});
document.getElementById('rlc-max-loan').innerHTML = formatter.format(loanAmount);
document.getElementById('rlc-total-interest').innerHTML = formatter.format(totalInterest);
document.getElementById('rlc-display-down').innerHTML = formatter.format(downPayment);
document.getElementById('rlc-total-power').innerHTML = formatter.format(totalBuyingPower);
resultsDiv.style.display = 'block';
}
Understanding the Reverse Loan Calculator
When planning for a major purchase like a car, a home, or a large personal loan, most people start with the price tag and work backward to find the monthly payment. However, financial prudence often suggests the opposite approach: determining your budget first. A Reverse Loan Calculator allows you to input your desired monthly payment, the expected interest rate, and the loan term to discover exactly how much money you can afford to borrow.
How It Works
This calculator determines the Present Value (PV) of a loan based on an annuity formula. It essentially asks, "What principal amount results in this specific monthly payment given these terms?"
The calculation considers three primary factors:
Monthly Budget: The maximum amount you can comfortably pay each month.
Interest Rate (APR): The cost of borrowing money, expressed as an annual percentage.
Loan Term: The duration over which you will repay the loan.
Additionally, if you have cash saved for a Down Payment, this amount is added directly to the calculated loan amount to give you your total "Buying Power."
The Formula Behind the Calculation
For those interested in the mathematics, the calculator uses the rearranged amortization formula:
Loan Amount = (P * (1 – (1 + r)^-n)) / r
Where:
P = Monthly Payment
r = Monthly Interest Rate (Annual Rate / 12)
n = Total Number of Months (Years * 12)
Example Calculation
Let's say you are looking to buy a used car. You have reviewed your monthly budget and determined you can afford $450 per month. The bank offers you an interest rate of 6.0% for a term of 4 years (48 months).
Input
Value
Monthly Payment
$450
Interest Rate
6.0%
Loan Term
4 Years
Using the Reverse Loan Calculator, you would find that the maximum loan amount you can take is approximately $19,165. If you simply multiplied $450 by 48 months, you might think you have $21,600, but interest eats up the difference ($2,435 in this case).
Why Use a Reverse Loan Calculator?
1. Stick to Your Budget: It prevents you from falling in love with a purchase that will strain your monthly finances.
2. Negotiation Power: Knowing your exact cap helps you negotiate the total price rather than focusing solely on monthly payments, a common tactic used by salespeople to hide the true cost of a loan.
3. Scenario Planning: You can easily see how changing the loan term affects your buying power. Extending the term increases how much you can borrow, but it also significantly increases the total interest paid.
Use the tool above to experiment with different interest rates and terms to find a loan structure that maximizes your buying power while keeping your finances secure.