Count on loans with straight repayments
You rarely have to count on your loan because most banks and credit companies either show you what the loan will cost each month already on the application form or have a loan calculator that you can use, at least when you make your application online.
There are exceptions
However, as the lender only shows the total cost of the loan and not how much it will affect your wallet each month, which is most common if you take out a loan with straight amortization.
The reason for this is that the monthly expenses for a loan with straight amortization fall for each month that passes, unlike an annuity loan, since the monthly expenses are exactly the same throughout the term.
Most lenders nevertheless show how the installment plan
It looks like because they are obliged to show it to you already in the advance information, but sometimes it is a little tricky with this, sometimes you do not get this info until you have got your loan agreement.
Of course, you can refuse to sign the agreement if the installment plan does not make sense, but it can always be nice to know what it will look like before you make your application. After all, it is not fun to apply for a loan with a credit report as a result, even if it is without UC.
Now we will, therefore, show you how you count on loans yourself so that you know how much you will be able to pay each month. This can be good to know for other reasons too, for example, if you want to check that the installment plan is really right.
This is how you calculate your monthly cost for straight amortization
However, most lenders offering sms and fast loans usually offer repayment with an annuity, so you often see clearly how much you have to pay each month on the application form. But then we have some single lenders, such as Good Credit, who use straight amortization where it is stated by their controls how much your first monthly payment will be but then it will be lower. This is when it can be good to be able to figure out what it will look like throughout the term. Okay, then we drive!
- Suppose you take a sms loan of USD 12,000 with a maturity of 2 years. Your annual interest rate is 10%, the subscription fee USD 20 / month and the setup fee USD 490. We must admit that you almost never get as low-interest rates as 10% when it comes to sms loans, but we use this percentage to make this example as clear as possible.
- You can usually ignore the setup fee when making your calculation because it is deducted from the loan amount. If you borrow USD 12,000, you still have to pay interest for the entire loan amount even though the fee is deducted from the loan amount so you only get USD 11510.
- A loan of USD 12,000 to be repaid in 24 months with straight amortization is thus USD 500 a month plus interest.
- As you pay off your monthly loan, the interest cost for each month goes down.
- Thus, in month 1, you pay USD 500 plus USD 100 in interest, plus a fee of USD 20. It will be USD 620 in total. How did we come to that? Well, since the annual interest rate is 10%, it will be USD 1,200 in loan costs if you would make your first payment only after a year, but since you pay monthly it will be one-twelfth of this sum, ie 1200 divided by 12, which becomes USD 100. Thus: 0.1 x 12000 = 1200 USD -> 1200/12 = 100 USD.
- Month 2 you will pay USD 616, including amortization, interest and a charge of USD 20. The sum thus becomes slightly lower because after the first repayment of USD 500 you “only” have a debt of USD 11,500 remaining. You should, therefore, pay USD 96 in interest instead of USD 100. 10% in annual interest of USD 11,500 is USD 1,150 and divided by twelve months it will be USD 96.
- If you want to figure out how much to pay for month 3, just calculate as before and so on. Just deduct USD 500 for each month, take 10% of the remaining debt, divide it by 12 and add USD 500 in amortization as well as USD 20 in the installment fee and you will see what the monthly payment will be.
- Although at first, it feels like the monthly cost is falling very little, it will become more noticeable later on, especially if you pay significantly higher interest rates than 10% which is common for sms loans. In the last month of this example, you only pay interest on the remaining five hundred and it will only be just over USD 4 in interest, ie a total of USD 524 if you include the amortization and the payment of fees.