Repayment Calculator

Most consumer debts are repaid in installments that cover the interest due and part of the principal. The calculator handles the two common ways of planning that repayment. With a fixed loan term, you choose when the debt should be gone and it finds the payment. With a fixed installment, you choose how much you can pay and it finds how long repayment will take.

Compounding frequency and payment frequency can differ. A credit card may compound daily while you pay monthly, and a loan quoted with an annual percentage yield compounds once a year. The calculator converts the quoted rate to an effective rate per payment, so the results stay accurate whatever the combination.

Fixed Loan Term

Choosing a payoff date suits goals such as clearing a car loan before buying the next vehicle or eliminating debt before retirement. A $10,000 balance at 10% compounded monthly needs a payment of $212.47 a month to be repaid in five years, for $2,748.23 in total interest. Shortening the term raises the payment but lowers the interest; lengthening it does the reverse.

Fixed Installments

When the budget sets the limit, start from the amount you can afford each period. Paying $200 a month on the same $10,000 balance at 10% takes 65 payments, or 5 years and 5 months, and costs $2,989.78 in interest, about $240 more than the five-year plan. The payment must exceed the interest that accrues each period, here about $83 a month, or the balance will never shrink. This is the trap of paying only the minimum on a credit card.

Fixed term: PMT = P × i ÷ [1 − (1 + i)⁻ⁿ] · Fixed payment: n = −ln(1 − P × i ÷ PMT) ÷ ln(1 + i)

P

loan balance

i

interest rate per payment period, (1 + effective annual rate)^(1/m) − 1

m

payments per year

n

number of payments

The fixed-payment formula only works when the payment exceeds the interest charged each period (P × i); otherwise the balance never falls.

Mortgages

Mortgages are the largest debt most households carry and usually run 15 or 30 years with fixed monthly payments. Because the balance is so large, small changes matter: an extra payment each year or a slightly shorter term can save tens of thousands of dollars. The mortgage and mortgage payoff calculators add property tax, insurance and extra-payment options.

Auto Loan

Car loans typically last three to seven years. Longer terms lower the payment but add interest and raise the risk of owing more than the car is worth. The auto loan calculator includes sales tax, fees and trade-ins.

Student Loans

Federal student loans default to a 10-year standard repayment plan with fixed monthly payments, while income-driven plans tie the payment to earnings and stretch the term to 20 years or more. Private student loans have terms set by the lender, usually 5 to 20 years. Federal and private education loans carry no prepayment penalties, so paying extra is always allowed. The student loan calculator covers payoff strategies and projects balances after graduation.

Credit Cards

Credit cards have no fixed term. The minimum payment is often just 1% to 3% of the balance plus interest, so paying only the minimum can stretch repayment over decades. At rates commonly above 20%, choosing a fixed payment well above the minimum, or a target payoff date, is the fastest way out. The credit card calculator models this in more detail.

How to Repay Loans Faster

Every dollar of principal repaid early stops accruing interest for the rest of the loan, so speeding up repayment always reduces total cost. Practical ways to do it include:

• Pay more than the minimum. Rounding a payment up or adding a fixed extra amount each month goes straight to principal on most loans. Confirm with the lender that extra money is applied to principal rather than to future payments.
• Make biweekly payments. Paying half the monthly amount every two weeks results in 13 full payments a year instead of 12.
• Apply windfalls. Tax refunds, bonuses, raises and gifts can be put toward the balance as lump sums.
• Target the most expensive debt first. The avalanche method pays extra on the highest-rate debt while making minimum payments on the rest, which minimizes total interest. The snowball method clears the smallest balances first, which some people find more motivating.
• Refinance or consolidate. Moving high-rate debt to a lower-rate loan or a 0% balance transfer card means more of each payment reduces principal. Watch for fees and avoid extending the term.
• Cut expenses or raise income. A budget review or side income can free up cash for extra payments.
• Check for prepayment penalties before paying ahead, and keep an emergency fund so that an unexpected bill does not send you back into debt.

Frequently asked questions

Sources

• Consumer Financial Protection Bureau – Loans
• Federal Student Aid – Repayment plans