Loan Calculator

Calculate payments, interest, and amortization schedules for amortized loans, deferred payment loans, and bonds. Versatile tool for all loan types and payment scenarios.

Amortized Loan Details

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Understanding Loan Categories

A loan is a contract between a borrower and a lender in which the borrower receives an amount of money (principal) that they are obligated to pay back in the future. Most loans can be categorized into one of three categories: Amortized Loan, Deferred Payment Loan, and Bond. This calculator helps you with all three.

Amortized Loan: Fixed Amount Paid Periodically

Many consumer loans fall into this category of loans that have regular payments that are amortized uniformly over their lifetime. Routine payments are made on principal and interest until the loan reaches maturity (is entirely paid off). Some of the most familiar amortized loans include mortgages, car loans, student loans, and personal loans. The word "loan" will probably refer to this type in everyday conversation, not the type in the second or third calculation.
Instead of using this general Loan Calculator for highly specific needs, it may be more useful to use specialized calculators such as: Mortgage Calculator, Auto Loan Calculator, Student Loan Calculator, etc.

Deferred Payment Loan: Single Lump Sum Due at Loan Maturity

Many commercial loans or short-term loans are in this category. Unlike the first calculation, which is amortized with payments spread uniformly over their lifetimes, these loans have a single, large lump sum due at maturity. Some loans, such as balloon loans, can also have smaller routine payments during their lifetimes, but this calculation only works for loans with a single payment of all principal and interest due at maturity.

Bond: Predetermined Lump Sum Paid at Loan Maturity

This kind of loan is rarely made except in the form of bonds. Technically, bonds operate differently from more conventional loans in that borrowers make a predetermined payment at maturity. The face, or par value of a bond, is the amount paid by the issuer (borrower) when the bond matures, assuming the borrower doesn't default. Face value denotes the amount received at maturity.
Two common bond types are coupon and zero-coupon bonds. With coupon bonds, lenders base coupon interest payments on a percentage of the face value. Coupon interest payments occur at predetermined intervals, usually annually or semi-annually. Zero-coupon bonds do not pay interest directly. Instead, borrowers sell bonds at a deep discount to their face value, then pay the face value when the bond matures. Users should note that the calculator above runs calculations for zero-coupon bonds.
After a borrower issues a bond, its value will fluctuate based on interest rates, market forces, and many other factors. While this does not change the bond's value at maturity, a bond's market price can still vary during its lifetime.

Loan Basics for Borrowers

Understanding the fundamental concepts of loans is essential for borrowers to make informed financial decisions. These key terms and concepts apply to most types of loans and affect the total cost of borrowing.

Essential Loan Terms

Interest Rate

Nearly all loan structures include interest, which is the profit that banks or lenders make on loans. Interest rate is the percentage of a loan paid by borrowers to lenders. For most loans, interest is paid in addition to principal repayment. Loan interest is usually expressed in APR, or annual percentage rate, which includes both interest and fees.

Loan Term

A loan term is the duration of the loan, given that required minimum payments are made each month. The term of the loan can affect the structure of the loan in many ways. Generally, the longer the term, the more interest will be accrued over time, raising the total cost of the loan for borrowers, but reducing the periodic payments.

Compounding Frequency

Compound interest is interest that is earned not only on the initial principal but also on accumulated interest from previous periods. Generally, the more frequently compounding occurs, the higher the total amount due on the loan. In most loans, compounding occurs monthly.

Principal

The principal is the original amount of money borrowed or the amount still owed on a loan, excluding interest. As you make payments on an amortizing loan, a portion goes toward reducing the principal balance.

APR vs APY: Understanding the Difference

It is important to understand the difference between APR and APY. The rate usually published by banks for saving accounts, money market accounts, and CDs is the annual percentage yield, or APY. APR (Annual Percentage Rate) is typically used for loans and includes fees, while APY (Annual Percentage Yield) is used for savings accounts and represents compound interest earnings.
Calculator Tip: Use our loan calculator above to see how different interest rates, loan terms, and compounding frequencies affect your total loan cost. Experimenting with these variables helps you understand their impact on your payments.

Consumer Loans: Secured vs. Unsecured

There are two basic kinds of consumer loans: secured or unsecured. Understanding the difference between these loan types is crucial for borrowers as it affects interest rates, qualification requirements, and risk factors.

Secured Loans

A secured loan means that the borrower has put up some asset as a form of collateral before being granted a loan. The lender is issued a lien, which is a right to possession of property belonging to another person until a debt is paid. In other words, defaulting on a secured loan will give the loan issuer the legal ability to seize the asset that was put up as collateral. The most common secured loans are mortgages and auto loans.

Lower Risk for Lenders

Lenders are generally hesitant to lend large amounts of money with no guarantee. Secured loans reduce the risk of the borrower defaulting since they risk losing whatever asset they put up as collateral.

Higher Approval Rates

Secured loans generally have a higher chance of approval because the collateral reduces the lender's risk. Even borrowers with lower credit scores may qualify.

Lower Interest Rates

Because of the reduced risk, secured loans typically offer lower interest rates compared to unsecured loans, making them more affordable over time.

Larger Loan Amounts

The collateral allows lenders to offer larger loan amounts, as the asset provides security for the debt. Common examples include home mortgages and auto loans.

Unsecured Loans

An unsecured loan is an agreement to pay a loan back without collateral. Because there is no collateral involved, lenders need a way to verify the financial integrity of their borrowers. This can be achieved through the five C's of credit: Character, Capacity, Capital, Collateral (applies to secured), and Conditions.

Higher Interest Rates

Unsecured loans generally feature higher interest rates than secured loans due to the increased risk for lenders. The lack of collateral means higher potential losses if borrowers default.

Lower Borrowing Limits

Without collateral to secure the loan, lenders typically offer lower borrowing limits to minimize their risk exposure. The amount depends heavily on creditworthiness.

Shorter Repayment Terms

Unsecured loans often have shorter repayment terms compared to secured loans, which helps lenders reduce their risk exposure over time.

Stricter Qualification

Lenders may require higher credit scores, stable income, and sometimes a co-signer. If borrowers default, lenders may hire collection agencies to recover the debt.

Examples of unsecured loans include credit cards, personal loans, and student loans. If the collateral is worth less than the outstanding debt on a secured loan, the borrower can still be liable for the remainder of the debt.

Frequently Asked Questions About Loans