How do I calculate total loan cost?

[stef]

Your help would sure be appreciated.

If I take out a $2,500.00 loan at .09% interest how much will it cost me in the end?

Do they figure it by multiplying the total dollar amount by the total percentage amount, or do they multiply each monthly payment by the percentage amount?

I know some of you here can help me with this.
Thanks in advance.
Stef

[kasilofhome]

It would depend on how the lender wishes and you agree to
simple or compount interest

2,500 at 9% for one year cost 123.54
2,500 at 9% for five years cost about 614.00

what is the length of time as that is very import aspect to the math problem

[Old Vet]

It depends on the lender. Most of them have either a daily balince or monthly balience thay mulitlpy the amount either by day or month and that is the the next balience.

[Macybaby]

For simple, you divide the interest rate by the number of payments a year. Monthly would be .09/12 = .0075. Then you multiply that by the principle each month to get the interest per month. For the first month, the interest would be 18.75. Add the interest, subtract the payment and then do it all again.

Much simpler with a finance calculator. If you go to many mortgage sites, they will have a calculator for you to use. I set up an amortization table using excell.

You need to know annual interest rate, number of payments per year and then either total number of payment (it will calculate pmt amount) or payment amount (and it will calculate number of payments). Well, with a calculator, you need to know three and it will figure the forth for you.

To figure out the total cost, once you have the term and payments, just take number of payments times payment amount, less original principle, and what is left is the cost of the loan.

Of course, then you add the fees and what ever else they add on.

Ok, that is your accounting lesson for today.

Cathy

[Ross]

Most loans are charged monthly interest, a few daily. So if done monthly it's .09/12 or .0075 but there's a more involved formulae to amortize it meaning to work out the loan payments and total. Need to know the total number of months for a loan calculated monthly. 5 years= 60 months etc. Not hard to do, so post a few more details and someone will plug it into a loan calculator or formula for you I'm sure. I agree 60 months is $614 of interest on $58.90/month payment.

[The Paw]

If you have a spreadsheet program on your computer (like Excel), it comes with a function to calculate payments. It is useful, because it allow you to change the amount, the rate, the payback period and see how all of these change the payment.

The function is PMT. If you look it up in the Excel Help menu it will tell you how to set it up. It essentially involves the steps others have outlined here. There are probably a bunch on-line if you google as well.

The important thing is to remember that almost all consumer loans calculate interest monthly, so that will be the period used in formulas.

[country_wife]

www.bankrate.com
Click on calculators.

[stef]

for your replies.

I can see I did not underestimate my grasp of higher finance!

However, the calculator did come in handy.

Macybaby...What do you love about South Dakota?

Stef

[Maura]

They have to tell you what your loan is going to cost. Truth in Lending is what you want, it's a form and they must present it to you before you sign on the dotted line. It will disclose what the interest rate is, what your borrowing, and what you will end up paying in interest.

[Daddymem]

Here is a summary of what is called Engineering economics. It takes it a step further and allows you to see present dollar values and future dollar values given assumed inflation rates. In other words you can see what the total payments come to in future dollars or current dollars which can be useful in long term loans since that $x payment 10 years from now may be a bargain compared to how it feels today.

[Wildwood Flower]

I use that Bankrate.com calculator all the time (previously mentioned). You can print off an amortization schedule. It is very quick and easy and shows you how much of your money is going towards interest and principal each month and what is the balance due.