Tom Wade

Payment Calculator

         Loan Details

*
*
*
*

More Information About Payment Calculators

There are several different methods of calculating a loan payment, and many different loan calculators out there. Many of these calculators will give slightly different answers (payment amounts) after the same data is entered into them, because there are several methods of calculating a loan payment.

There is, however, a range of payment amounts which will work for the same loan assumptions. For instance, there might be (but not usually) a payment amount which would allow the borrower to pay off a loan with exactly the number of payments specified. However, for most loans this is not the case. Most loans will require an odd payment at the end of the loan period. This might be a few cents less than a normal payment, or many dollars less than a full payment. Any calculated loan payment which pays off the loan with N-1 payments, and a partial payment on the last payment, is a correct solution.

There is also a formula which can be worked, which yields a result in one calculation, but the solution is only an approximation, and in many cases will still leave a balance after the N payments have been made.

This calculator uses a reiteration method, in which it actually guesses at a payment amount, then calculates each payment for the life of the loan. Then it looks at the result, then picks a new amount, and tries it again. This method generally gives the minimum amount which satifies the loan in the given amount of payment. Many lenders will round this amount up to the nearest whole dollar, which makes the last payment a bit smaller.

Different lenders also use different methods of calculating their loan servicing. Some banks, for instance, use the numbers of days since your last payment to calculate the interest due from this payment. Other banks use the "30/360" method, which assumes that there are 360 days in a year, and each month has 30 days. Using the actual days method adds to the complexity of the calculations, but makes little difference in the result. For instance, one popular calculator, using the mythical $100,000 house, with 360 payments at 5%, calculates the payment at $536.72 using the actual days method, and $536.82 using the 30/360 method. This calculator gives $536.77 using the 30/360 method.

An interesting exercise is to plug in these same numbers into an amortization schedule and check the results for the last payment. You can also double check an amortization schedule with a spreadsheet, if you're handy with a spreadsheet.