Loan calculation

Nominal interest, repayment (principal), effective annual interest rate, installments or the term are among the factors that appear in every type of loan. Based on these factors, individual loan types and their respective loan calculations can be distinguished and compared.

Role of the loan in loan calculation

Regardless of the type of a loan, the basic goal is always the same: the borrower receives an amount of money from the lender. This gives the borrower liquidity and therefore funds for other expenses remain available.

The lender provides the funds in advance to the borrower or makes the corresponding amount available. The lender receives its services back from the borrower in installments or after a certain term previously agreed upon. In addition, the lender may receive fees and interest on the loan amount. These are already specified in the loan calculation, i.e. the loan offer. By providing their capital, the lender ultimately increases their assets.

For which types of loans is a loan calculation useful?

Loans are generally distinguished by term, amount (principal), the repayment schedule and the purpose.
 

Purchase loans / instalment loans

are asset- or goods-linked loans such as vehicle financing or a loan for the purchase of certain products and are often offered by the manufacturers themselves. They offer favorable to cost-free repayment options. Asset-linked loans, e.g. the mentioned vehicle financing, can also be offered by independent lenders with a comparatively favorable loan calculation, since the loan amount is secured by a retention of title in favor of the lender.
 

Construction financing / mortgage lending

The situation is similar in the area of construction financing and the loan calculation for this type. This is referred to as an annuity loan. Construction financing is characterized by fixed, equal installments (annuities) over a very long period that include interest and repayment. Construction loans can also be offered at very favorable interest rates because the terms are very long and the loan amount is usually secured by the property itself (land charge / mortgage).
 

Short- and medium-term consumer and cash loans

In contrast to these loans are short- and medium-term consumer and cash loans. These are neither purpose-bound nor asset-bound. They are provided to the borrower as cash. Installment loans of this kind are higher-priced (higher interest), i.e. the loan costs are significantly higher than for the other loan types. Therefore, a loan calculation is definitely worthwhile. This is due to the short term (short-term: up to 6 months, medium-term: up to 4 years), the uncertain purpose and, consequently, a considerably higher default risk for the lender.**
\

A special form of cash loans are discretionary loans. They are granted to the borrower without examination or application. Another common term for a discretionary loan is the overdraft (disposition credit). Discretionary loans are very limited in amount and term. The lender authorizes them up to a certain amount as a flat rate. The amount of the loan depends on the lender's assessment basis. Monthly income is usually used as the basis for the calculation. Thus, the costs for a loan increase depending on the term and default risk.
Here too, a loan calculation—for example with the help of a loan calculator—can be worthwhile.

Main factors in loan calculation

The term is one of the important factors for the loan calculation; it is the period from the disbursement of the loan amount until full repayment including all costs of the loan. The shorter the term, the higher the interest rate usually is. Depending on the type of loan, the lender may charge a loan fee as a processing fee for making the loan available.

Interest is the percentage share that must be repaid by the borrower in addition to the loan amount. Depending on the loan type and term, this percentage is calculated daily, monthly or annually on the outstanding balance.

Repayment (principal) is the next essential factor for the loan calculation. This is a fixed amount that the borrower pays to the lender at agreed dates / according to a repayment schedule in order to pay off the loan amount. A constant agreed amount that the borrower pays at set dates is the repayment rate. This consists of the repayment (principal) and the interest. Depending on the loan type, a residual amount may be agreed that is to be paid once at the end of the loan term.

This reduces the monthly installment but also carries a higher default risk if the borrower cannot raise the residual amount at the end of the term. The agreement of a residual debt is, for example, common in vehicle financing.

A special repayment serves to shorten or prematurely terminate the loan. It specifies to what extent the loan amount can be repaid in addition to the agreed rate and thus shortened. The special repayment is usually given per period and must be taken into account in the loan calculation.

For early terminations of loans or installment loans, lenders often charge prepayment interest. Commitment interest (Bereitstellungszinsen) are common for medium- and long-term loans such as construction and mortgage financing. The lender is obliged to keep the loan amount available after the loan commitment.

Other factors in loan calculation

If a longer period elapses between the loan commitment and the actual drawdown of the loan amount, the lender charges commitment interest for this period. The fixed-interest period is the period for which the interest rate is contractually fixed. For medium- or long-term financings this is often shorter than the overall loan term. The longer the fixed-interest period, the higher the interest rate calculated by the lender in the loan calculation.

Creditworthiness is the lender's assessment of the borrower's ability to repay. The higher the assumed creditworthiness, the lower the default risk for the lender. Accordingly, the interest rates are lower. This risk can be reduced by including various securities. 

Securities generally include all assets and valuables as well as guarantees.

All fees and interest that the borrower must pay in addition to the loan amount and that must be taken into account in the loan calculation are called loan costs. The effective annual interest rate is the interest rate that relates to the actual costs incurred for the loan. It includes all fees as well as the nominal interest of the loan. It is used, among other things, to compare loan offers.

Loan calculation for the effective annual interest rate

Assumption:

• Loan amount 5,000 EUR,
• Interest rate: 0.5%,
• Term 4 years (48 months),
• Origination fee: 2%
• Interest: 5,000 EUR x 0.5% per month x 48 months = 1,200 EUR
• Fees: 5,000 EUR x 2.0% = 100 EUR
• Loan costs: Interest + Fees = 1,300 EUR
• Effective annual interest rate (uniform method): Formula: [(Loan costs / Loan amount) x (24 / term in months +1)] x 100 (Note: / means "divided by") therefore: [(1,300 EUR / 5,000 EUR) x (24 / 49 months) ] x 100 = 12.73 %
• Repayment schedule: monthly rate: (1,300 EUR /48 months ) + (5,000 EUR / 48 months) = 131.25 EUR
   

For your own calculation please use our Maxda loan calculator.

Another example of loan calculation / repayment schedule

• Loan: 150,000 EUR,
• Interest rate: 3% annual interest
• Annual installment: 35,000 EUR (= 2,916.66 EUR / month) year

What can be observed in the loan calculation is the growing share of repayment in the annual installment due to the decreasing interest payments on the outstanding balance. To make investments without sufficient equity or to maintain liquidity, companies as well as private individuals can fall back on a variety of loan types. By performing the loan calculation and then looking at the loan costs and factors, loan offers can be compared and evaluated. Use our loan calculator for this as well.

Did you perhaps also search for these keywords?

Calculator, loan calculator, Maxda loan calculator, Maxda calculator, calculate installment loan, annuity loan, Maxda annuity loan, bank, loan interest rates, conditions, interest, interest calculator, loan installment, repayment portion, loan comparison, loan without Schufa, loan without Schufa