# Calculate loan installment what affects the total cost of the loan?

There are situations in life when an extra cash injection is needed to finance an out-of-budget expense. For a small purchase, a simple payday loan for a small amount is sufficient, but if you need more funding, you can choose a traditional bank loan or installment loan from non-bank institutions. These offers differ primarily in cost, so before signing the contract, it is worth calculating the installments in advance to choose the most advantageous option.

## What is the installment amount?

There are loans available on the market which at first glance seem attractive from the borrower’s point of view. Such offers advertise with low interest rates and high granting, and with detailed analysis their cost far exceeds our financial capabilities. It is worth mentioning that the interest rate is only a component of the total cost of repayment, as there are other values. They have a direct impact not only on the amount of monthly installments, but also on the entire capital. What are the installments made of?

• Credit interest rate – it can be variable or fixed. The interest rate on the loan amount granted means the amount that will be added to each installment. Currently, the loan interest rate cannot exceed 10% and it is regulated by law.

• Commission – this is a one-time fee charged for granting a loan. It can be added at the beginning or included in the total cost of the loan.

• APRC – Actual Annual Interest Rate is the most important parameter that determines the amount of installments. The APRC includes all additional fees added to the basic capital.

• Insurance – banks that grant loans for a long repayment period and a large sum often require purchasing additional loan insurance. It is a collateral in the event of difficulties with repayment of loans, which may result from an unforeseen life situation.

• Additional costs – some lenders charge additional fees for preparing a loan application, issuing a decision or servicing the loan.

It is worth mentioning that non-bank companies that grant installment loans often do not charge additional fees. Therefore, the main factor affecting the amount of installments is the APRC, whose component is the interest rate on the loan. You can use a cash calculator, mathematical formula, or Excel functions to calculate the total cost of credit.

## How to calculate the installment?

Knowing the basic parameters of the loan, you can calculate the installment yourself using the available tools. One option is to substitute data into a mathematical formula:

R – loan installment

K – loan amount

N – number of installments

The value of “q” should be calculated from the formula q = 1 + r / m, where “r” is the nominal interest rate and “m” the number of installments in the capital period.

This method may seem quite complicated, especially for people who do not have sufficient mathematical skills. An alternative to the formula may be the PMT function available in Excel, with which you can also calculate the installment amount using your data. However, the easiest to use is the cash loan calculator that you can find online. This tool is very intuitive and requires only supplementing the headings with data such as:

• amount of credit,
• commission amount,
• loan interest rate,
• loan period,
• installment type

The loan calculator will automatically calculate installments taking into account given parameters, without the need to use mathematical formulas. In this way, you can easily estimate how much money you will have to make in your household budget to regularly pay off your monthly commitment.

## Loan repayment calculator on a website

The easiest way to calculate the installment is via the lender’s tool. Just use the sliders to specify the loan amount and the number of installments into which you want to divide the commitment, and you will immediately receive the necessary calculations.

The sliders replace the loan repayment calculator and automatically calculate the APRC, the monthly installment and the total amount to be repaid based on the values ​​provided. In addition, a repayment schedule and additional information are generated that should be read before submitting the application and signing the contract. Installment loans are granted on simpler terms than loans, but you must prove your creditworthiness, especially when raising larger amounts. You can also calculate your creditworthiness, which can be helpful in determining the loan amount so that it can be repaid.

## Credit calculator

Institutions providing loans in installments check their clients in available debtors’ bases. This is to assess the risk based on your credit history and to determine whether the applicant will meet his commitment in a timely manner. Creditworthiness is one of the most important criteria that a bank takes into account when deciding whether to grant a loan. An easy-to-use creditworthiness calculator is available on the internet to help you assess your chances of getting a grant yourself. To use this tool, simply fill in the fields with information about yourself that will allow you to calculate your financial options in repayment of the loan. To use the calculator, you must provide information such as:

• gross monthly income,
• amount of monthly fees,
• number of people on the farm,
• maintenance costs,
• loan amount,
• loan period,
• interest rate.

Based on this data, the creditworthiness calculator will calculate what amount of monthly installments will be payable. This will allow you to adjust the parameters of the loan to your own financial possibilities without the risk that your monthly income will not be enough to cover the liability. Remember to pay your debts in a timely manner so that you don’t run the extra cost. It is also worth taking care of your credit history, so that in the future it will be easier to get the necessary financial support.