Loan Calculator (Personal and Educational)

Publication Date :

15 Jan, 2024

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Download FREE Loan Calculator Excel Template and Follow Along!

Loan Calculator Excel Template

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Loan Calculator

This Simple Loan Calculator is useful for calculating periodical installments, whether monthly, quarterly, semi-annually, or annually. Best educational loan calculators assist in calculating potential monthly payments, interest rates, and overall loan costs. This tool proves indispensable for students and their families in making informed decisions regarding loan affordability, repayment terms, and budgeting for educational expenses.

Despite its usefulness, educational loan calculators have limitations. They often provide estimates based on average interest rates and may not account for individual circumstances, such as variable interest rates or changes in financial situations. Users should view the results as approximations, recognizing that actual loan terms may differ based on multiple factors in and beyond their control.

Educational Loan Calculator Explained

An educational loan, also referred to as a student loan, is a financial tool designed to assist individuals in funding their education. These loans cover various educational expenses, including tuition fees, books, accommodation, and other related costs. Unlike other types of loans, educational loans often have favorable terms such as lower interest rates and deferred repayment until after the student completes their education.

To understand the structure and intricacies of educational loans, borrowers frequently use educational loan calculators. These online tools provide a comprehensive overview of the potential financial implications of borrowing for education. Users can input variables such as loan amount, interest rates, and repayment terms to obtain estimates of monthly payments, total interest paid, and the overall cost of the loan.

The significance of values derived from educational loan calculator interest rates lies in its ability to empower students and their families to make wise decisions. By utilizing the calculator, individuals can assess the feasibility of different loan options, understand long-term financial commitments, and plan for effective loan repayment strategies. This proactive approach assists in preventing excessive debt burdens and ensures that borrowers enter into loan agreements with a clear understanding of the financial responsibilities involved.

However, it's important to note the limitations of educational loan calculators. While they provide valuable estimates, they may not capture the nuances of individual financial situations or unforeseen circumstances. Changes in interest rates, future income, or unexpected financial challenges are factors that calculators may not fully consider.

Formula

The formula based on which the best educational loan calculators are designed is as follows:

Wherein,

P is the loan amount
R is the rate of interest per annum
N is the number of periods or frequency wherein the loan amount is to be paid

This considers the initial amount, the principal, or the loan amount and compounds the interest rate depending on the repayment frequency. This calculator shall allow comparing loans across maturities, and the user would be able to calculate what extra loan amount will be the outgo in the form of interest. This simple calculator is useful for computing installments for any product, whether personal loans or educational loans.

How to Calculate?

One needs to follow the steps below in order to calculate the loan's periodical installments.

Calculate the down payment, if any, and deduct the same from the total value of the thing for which the loan is taken, which shall provide the loan amount or, in other words, is the principal amount:
Multiply the principal by the rate of interest applicable to the loan product.
Now, we need to compound the same by rate until the loan period.
We now need to discount the above result obtained in step 3 by the following:
After entering the above formula in excel, we shall obtain installments periodically for the loan in question.

Process

Let us understand the process of applying to such loans and following it up with cross-checking with educational loan calculator interest rates through the points below.

Begin by researching and selecting suitable educational loan programs offered by lenders, government agencies, or financial institutions.
Evaluate eligibility criteria, which may include factors like enrollment in an accredited educational institution, academic performance, and citizenship status.
For federal student loans in the United States, complete the Free Application for Federal Student Aid (FAFSA) to determine eligibility for federal aid programs.
Once approved, ascertain the required loan amount based on the total cost of education, factoring in tuition, books, accommodation, and other related expenses.
Understand the interest rates and repayment terms associated with the chosen loan, considering whether they are fixed or variable and the duration of the repayment period.
Upon acceptance of the loan offer, the funds are typically disbursed directly to the educational institution to cover the approved expenses.
Develop a repayment plan, taking into account the grace period after graduation and exploring options such as income-driven repayment plans or loan consolidation.
Initiate regular monthly payments according to the agreed-upon schedule, ensuring timely and consistent repayment to avoid penalties or additional charges.

Examples

Let us understand the practicality of the best educational loan calculators and personal loans through the examples below.

Example #1

Mr. Vince wants to purchase a luxury Hyundai car that will cost him around $35,000. He enquired about the showroom, and luckily, the showroom had tied with a bank that provides instant loans for creditworthy customers. On inquiry with the banker, he was told that as per his credit score, he is eligible for a 90% loan, and the rest has to be paid upfront as a down payment. He agreed to the same, and further, he was told that the interest rate would be 11%, and the maximum tenure he can avail for is five years and has to be repaid monthly.

You are required to Calculate the installment amount on the loan that Mr. Vince is required to pay.

Solution:

We need to calculate the EMI amount; the number of installments is five years, but since it is monthly outgo, the number of payments required to be paid is 12*5, which is 60 equal monthly installments. Lastly, the interest rate is 11.00% fixed, which shall be calculated monthly at 11.00%/12, which is 0.92%.

Upfront Down-payment Calculation:

Loan Amount * (1 - loan percentage)

Loan calculator Example 1-1

The loan amount will be

Loan calculator Example 1-2

Now we shall use the below formula to Calculate the Loan amount.

EMI = /

Loan calculator Example 1-3 (Emi Amt)

Therefore, the EMI amount for this vehicle loan will be 648.89 for 5 years with monthly repayment.

Example #2

VJ has been excellent in his studies and belongs to a middle-class family. He desires to study in a college where the fees are around $21,500 for two years. His father approaches the bank, where the branch managers ask him to avail of an educational loan, or he can take a personal loan. If he opts for a personal loan, he would be getting a loan amount of $18,000 with a rate of interest of 13%, and if he opts for an educational loan, he can avail of it fully at a rate of interest of 12.00%. He intends to avail of a loan for seven years. You are required to advise VJ as to which loan should be preferred.

Solution:

We need to calculate the EMI amount for both products. The number of installments is seven years, but since it is a monthly outgo, the number of payments required to be paid is 12*7, which is 84 equal installments. Lastly, the interest rate is 13% and 12% fixed for personal and educational loans, respectively, which shall be calculated monthly, which is 13%/12, which is 1.08%, and 12%/12, which is 1%.