When taking on any form of business finance or loan, the critical factor for most business people is the cost of the loan. You know the price of the goods or assets you are purchasing and you can probably have a good idea of current interest rates, but converting all that information into monthly repayments and total loan cost is what really matters in most instances.
A Loan Interest Calculator can assist you with that process. Online loan calculators are widely available on the websites for banks, finance brokers, lenders and other companies that offer finance such as car dealers and equipment manufacturers.
Online calculators are usually presented as loan calculators as their primary purpose is to enable the user to calculate a rough estimate of monthly repayments on a total loan amount over a set term at the current advertised interest rate.
However, the data calculated can also be utilised and considered from another perspective – that is, to assess the total amount of interest you may pay on a certain loan and to assess what interest rate you need to be offered to achieve the repayment level and loan structure that works for your business. We’ll explain by stepping you through how a loan calculator works and then how to analyse the data in different ways.
Using a Loan Interest Calculator
Online loan calculators are set out in standard online form layout and format with fields where you enter data, in this case, amounts pertaining to your proposed purchase/loan.
- Loan Amount: enter the total amount you want to borrow.
- Loan Term: enter the number of months/years you realistically think you would like to repay the loan. Being mindful that lenders do have guidelines which vary across assets/goods loan categories.
- Interest Rate: enter the current interest rate for the loan type and category you are considering, ie truck, equipment, car, business loan etc, as advertised by the lender.
- Balloon: this is an option for some loan types and presented as a percentage of the loan amount. For more information on balloons and residuals, refer to our Loan Type web pages.
- With all the fields completed, click CALCULATE and a figure will be displayed. This represents the estimate of monthly repayments based on the amounts you entered.
Analysing, Assessing and Utilising the Data
The main purpose of this type of calculator is to provide quick ballpark repayment estimates. The figure derived is only an estimate as these devices do not have the capability to allow for the fees and charges which may be applied to your loan by individual lenders.
- If the repayment is higher than you anticipated, you can change the total loan amount to get a different result but that may involve you paying a deposit or sourcing a cheaper purchase.
- You can also vary the loan term – increasing the term will decrease the repayments but will take you longer to repay the loan and increase the cost of the loan.
- You can also vary the interest rate and note how that changes the repayment amount. That may give you an indication of the interest rate that you will need to be offered on that loan amount to achieve roughly the repayment level that works for you.
- Now to calculate the total interest cost of the loan (less of course the lender’s fees and charges as mentioned above).
- Manually, not on the calculator, note the repayment amount and multiply that by the number of repayments add the amount of any balloon you have selected and the result will give you an estimate of the total cost of your loan. Allow extra for the fees and charges.
- Subtract the total loan amount from the total cost of the loan and you’ll have a rough idea of the amount of interest you will be paying on that loan.
In planning business goods and assets acquisitions and purchases, loan calculators can be a very useful resource and as we’ve just demonstrated, the data can be analysed and assessed in a number of ways.