If you’re considering a debt payment plan for your installment loan, there are a few things that you need to keep in mind. In this article, we’ll outline the three most common methods for calculating installment loan payments, and provide some tips on how to choose the one that’s right for you. For the quickest solution, use the free installment loan calculator by FlashApply.com.
What are the Terms of an Installment Loan?
When you take out a loan to purchase a car or another item, the terms of the loan will affect how often you need to pay it off, how much you are required to pay each month, and what interest rates you are charged.
The most common type of installment loan is a variable-rate loan. This means the interest rate changes over time, based on a gauge that is set by the bank or credit union. This is usually good for people who are not sure when they will be able to pay off the loan.
Fixed-rate loans are usually better for people who know they will be able to pay off the loan within a certain time period. These loans have an interest rate that stays the same throughout the entire loan term. This can be good if you have a fixed income and do not want to worry about fluctuations in interest rates.
Some lenders also offer hybrid loans, which combine features of both fixed- and variable-rate loans. This allows you to have more control over your monthly payments, while still having access to low-interest rates.
What are Three Ways to Calculate an Installment Loan Payment?
There are three common ways to calculate an installment loan payment: using the interest rate, using the principal amount, and using the total payments.
- To calculate the payment using the interest rate, take the interest rate and divide it by the principal amount. Then multiply that number by the monthly installment amount. For example, if someone borrows $10,000 at 8% interest and makes 12 monthly payments of $100, their payment would be $872.12 ($10,000 ÷ $100 = .08).
- To calculate the payment using the principal amount, take the principal amount and divide it by the interest rate. Then multiply that number by the monthly installment amount. For example, if someone borrows $10,000 at 8% interest and makes 12 monthly payments of $100, their payment would be $880.48 ($10,000 ÷ .08 = $880.48).
- To calculate the payment using the total payments method, add all of the monthly installment amounts together and divide that number by 12. For example, if someone borrows $10,000 at 8% interest and makes 12 monthly payments of $100, their payment would be $1,072.96.
Conclusion
In this article, we discussed three methods that can be used to calculate an installment loan payment. These calculations will help you determine the amount of money that needs to be borrowed, the interest rate that will apply, and when the loan should be paid off. Armed with this information, you can begin the process of getting an installment loan and making some important financial decisions.
