The formula for calculating the monthly payment amount is the issue that borrowers are most concerned about.
However, not everyone knows this formula. So what is the specific calculation formula? And what should you keep in mind?
What is the formula for calculating monthly payments and benefits – limitations when borrowing money?
Only when there is a need to borrow installment loans, you have to pay attention to how to calculate the monthly payment amount . So, to learn about the formula to calculate the monthly payment amount , you should note the issues
1. The concept of installment loans
It is a form of unsecured loan that is being used by many people without having to mortgage assets. You can rely on your own reputation to borrow with a long loan term and limit. Each month, you will make an agreed-upon payment to the lending bank or creditor.
This means you don’t have to pay the entire amount you want to borrow at once. Which will divide that amount to pay gradually along with the interest of the loan. Usually, the payment period will last for about 6 months, 12 months or depending on the amount you borrow.
2. What are the benefits of installment loans?
There are many advantages when you take out an installment loan. Specifically, we can enumerate some of the benefits such as,
You do not need to pay the full value of the property/item
Very suitable when you do not have enough money to pay in full for an item or property of great value. Support parties will allow you to pay only 30% to 50% of the product value in advance. The remaining amounts will be paid in installments each month during the loan application period.
The installment loan process is quite simple and easy
You will not need to mortgage any property to secure the value of the item. The loan amount as well as the loan period will depend on the value of the product you want to buy. Or, you will meet the conditions of the lender.
The procedure for making installment documents is quite simple and not as complicated as many people think. You only need to provide some information such as ID card, household registration, etc. Some places will ask you to declare the most recent monthly salary or utility bill.
Flexible installment period and preferential interest rates
Depending on the loan as well as your financial ability to choose the repayment period. Consumer loans can range from 6 months to 12 months. Real estate loans like buying a house with installment payments can be up to 20 years…
Banks or financial companies also support customers with preferential policies on interest rates. This is the competitive factor that helps customers benefit the most. You can get an installment loan with 0% interest…
3. Some restrictions when you take out an installment loan
Formula to calculate monthly payment and pay on time
Because the loan is broken down during the repayment process, you need to repay the loan on time. In case you pay late, the finance company or bank will fine you with a high amount. Besides, if the frequency of late repayment is much, you may be saved information on the installment loan schedule.
Or, if you are in need of liquidating the installment purchase contract? You will also be subject to a pre-liquidation penalty fee. This fee depends on how much you borrow and how long you want to repay.
Formula to calculate monthly payment amount and note before borrowing
To borrow money, you need to find out in advance the issues related to installment payments. This will also help you limit a lot of risks during the loan and repayment process. Specifically, you should consider the following:
Consider your financial ability and calculate how to repay the debt
During the installment loan process, you should borrow within your ability to pay. Do not buy items or real estate beyond your ability to pay. You should learn the formula for calculating the monthly payment amount .
Then, balance your income with the amount of living expenses to consider a loan. You must ensure that the installment process does not affect your life much. At the same time, the repayment process must also be flexible and planned to avoid risks.
Should consider the loan period
The loan amount is important, but the repayment period is also important. It depends on your financial ability and monthly income. If your income is low, you should choose a long-term loan to reduce the payment pressure. But consider the time to avoid the case that paying the debt before time will be subject to interest penalty.
Should carefully consider the interest rate and where to support loans
You should research banks or reputable financial companies to get a safe loan. Please refer and choose the places that help you borrow with preferential interest rates. In the process, it is also important to learn about interest rates as well as costs incurred.
Some additional fees you need to know such as late payment penalty fees, early settlement fees… These are quite high fees and easy to incur. Therefore, you need to consult and choose before making a decision.
Read the loan agreement carefully
The terms will greatly affect your rights. Therefore, you need to carefully read the conditions as well as the requirements on interest rates, costs incurred… Most of the content will be financial related terms. You should read carefully to understand more about these terms.
The formula to calculate the monthly payment you should know
Usually, people will help you with a loan with an upfront amount of about 30%. And you should calculate the monthly amount in excel so that it will be easier to track. So how is the formula to calculate the monthly payment ?
Formula to calculate monthly payment
Remaining principal balance = initial outstanding balance – principal balance paid periodically
Interest paid this month = Remaining balance * current applied interest rate * number of days to calculate interest
In which, the number of days for calculating loan interest is the difference from the last repayment date of the previous month to the expected settlement date. And the monthly payment amount should only be chosen at between 30% and 40% to avoid financial pressure.
>>> See more: Installment loans need to be aware of this so as not to become a “debtor” for life
With the above sharing, you will better understand the factors related to installment loans. At the same time, you will partly understand the formula for calculating the monthly payment amount . Through that, you will easily avoid unnecessary risk factors in the installment loan process!
Van Anh – Real Estate Information Analyst