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Calculate installment loan – how it works

Summary

In order to be able to calculate an installment loan, you need not only information but also a little mathematical skill. A tip is to look for a suitable computer on the Internet. If you want to understand a calculation, […]

In order to be able to calculate an installment loan, you need not only information but also a little mathematical skill. A tip is to look for a suitable computer on the Internet. If you want to understand a calculation, this can be done using a simplified formula.

Calculating an installment loan: example

Although an exact calculation is relatively complicated, you can try your hand at a small amount of data. In addition to the desired amount of money, you also need the term and the interest rate of the bank. As an example, a sum of 5,000 euros is taken as an installment loan. If you now apply an interest rate of five percent, the result is an annual interest payment of 250 euros. With a term of five years, this results in interest payments of 1,250 euros for the entire payment period.

Now you just have to add the calculated amount to the loan amount, which results in a value of 6,250 euros. You can then allocate this amount to a term in various ways. For a duration of 12 months, divide 6,250 euros by 12 to determine the monthly payments. For a term of up to 84 months, adjust the formula accordingly. In this way you can calculate your monthly loan payments. (What exactly is an installment loan?)

Tips for practice

It is essential to mention that this is a greatly simplified example. As a rule, the banks will charge you processing fees in addition to the interest rates. These can also be set in percent. In addition, the costs also depend on your creditworthiness. The lower the chance of a non-repayment, the lower your monthly installment payments.

In practice, banks take a number of factors into account. Such a complex model is not always easy to understand, even for a trained mathematician. However, if you want to get a rough overview of the calculation, then the tips mentioned should help you. (Requirement for an installment loan without Schufa)