On the modern lending market are many banks. You can get a loan for any purchase: from household appliances to an apartment. One of the main indicators in the loan agreement is the interest rate. The amount of overpayment on borrowed funds depends on it. The lower the interest rate, the less, respectively, will be the amount of overpayment. But how to calculate the interest on the loan? What formula applies the bank and how to benefit from the loan agreement, we will tell in this article.
What is a loan?
The loan agreement, as a rule, involves two main actors. This is a bank and a customer. The client signs the contract, from which it follows that the borrower asks him to finance on certain conditions.
Each loan agreement is executed on the terms of payment, repayment and urgency. Paying means that a banking organization issues money to a borrower at a certain percentage, on which the bank earns money.
Return means that the client must return the full amount of the loan, including interest for the actual use of credit funds. And urgency includes certain payment terms that are not recommended to be violated, as penalties will follow.
You can make a contract for a product, apartment, or just take cash. In this regard, there are three main areas:
- Car loans.
- Customer credit.
Target and non-target loans can also be distinguished, but these are just general symbols. The most important thing in lending is the loan rate, on the basis of which interest is calculated.
In order to be well versed in bank offers for loan agreements, it is important to be able to calculate the interest on the loan yourself. This will allow you to estimate the total cost of lending and find the best deals. In order to understand how to calculate a loan yourself, it is necessary to understand some banking terminology.
This is one of the basic concepts. Also, loan debt is often referred to as the loan body or the principal amount. This is the part of the money with which the bank finances the client. It should be borne in mind that the amount of the main debt may include additional services such as insurance and SMS-informing.
Interest on the loan will depend on the amount of loan debt. Since the annual interest rate on the loan is charged just on the amount of principal.
Let’s look at an example. Suppose you have issued a loan for 15,000 rubles, in addition, a life and health insurance service for 2,000 rubles and SMS information for 800 rubles. The total loan amount will be 17,800 rubles. This is the amount on which the bank will accrue interest.
But as the monthly payments are paid, the loan body will decrease, and interest will be charged on a smaller amount of principal.
Loan interest is a fixed amount, depending on the loan body, which the bank offers to the client for servicing the loan agreement. In different types of loans the amount of interest varies.
For mortgage contracts, the rate varies from 10 to 15%, which is significantly lower than for consumer loans (about 20-40%). This is because the body of the loan in the mortgage is much higher than, for example, in lending for household appliances.
The monthly payment is the amount that the customer agrees to pay on a monthly basis. It consists of the principal amount and interest on the loan agreement. Such a payment may be annuity, i.e., the same throughout the loan, except for the most recent payment.
Or differentiated, in which a fixed amount of loan debt is established, but at the same time the payment itself decreases as the loan is repaid.
How to calculate the interest?
After reviewing the basic terminology, we can now figure out how to conduct credit calculations on our own. All banks apply a single formula for calculating interest on the loan. It looks like this:
% = Basic. debt * Perc. becoming * Fact d / dn year where:
- % – interest on lending for the current billing period or the current month;
- Basics debt – the balance of the principal amount;
- % becoming – interest rate on the loan;
- Fact. days – the actual number of days to use the loan or the days in the current month;
- Days year is the total number of days in a year.
How to calculate loan interest? To make it clearer how to calculate percentages correctly, consider the calculation example.
To calculate the amount, we define the basic parameters of the loan in rubles:
- Amount of financing: 18,200.
- Insurance: 1 000.
- SMS information: 800.
- Interest rate: 20%.
- Monthly payment: 3 000.
- Date of execution of the contract: May 1.
Based on the parameters, the total loan (principal amount) will be 20,000 rubles (18,200 + 1,000 + 800). Interest is calculated on it in the first month. Substitute the values in the formula and calculate the interest for May:
% = 20 000 * 20% * 31/365 = 339 rubles 73 kopecks. This is the amount of interest that will be included in the monthly payment for May. And the payment itself will need to be made before June 1. Build a table of repayment schedule:
As can be seen from the table, the monthly payment includes interest for May, which is calculated from the original loan debt. At the same time, the loan body has decreased. Calculate the value is quite simple: 20 000 – 2 660.27 = 17 339.73. Now the interest rate on loans and borrowings will be charged on a smaller amount of loan debt. We continue to calculate the annual interest on the loan:
% = 17 339.73 * 20% * 30/365 = 285 rubles 04 kopecks. The amount of interest that will be included in the monthly payment for June. We pay, respectively, until July 1. Extend our payment schedule.
The loan body continues to decrease: 17 339.73 – 2 714.96 = 14 624.77. What pattern can be noticed? Every month, the monthly payment includes more and more of the principal amount and less interest. Thus, loan agreements are structured in such a way that in the first months the bank will receive the greatest profit.
And closer to the end of the loan period, the overpayment amount included in the monthly payment will be insignificant. And to the borrower, in order to save money as much as possible, you need to pay off all your debts as quickly as possible. This is just an example of how credit is calculated. It is not necessary to count everything independently, banks offer services in the form of online calculators that will build a similar payment schedule in a matter of seconds.
How to save on a loan?
It is more important to understand not how to calculate the interest, but how to use this knowledge and save on the loan agreement. First, it should be understood that no one has the right to match one service with another.
In this case, the service will be a loan, so additional conditions, such as insurance or SMS, are optional, with the exception of mortgage property insurance or collateral insurance for car loans. Therefore, without including additional services, you can reduce the body of the loan.
Secondly, do not sign the very first sentence. You should study the market and choose the loan product at which the interest rate is the lowest. Since the amount of overpayment is considered based on the interest rate.
Thirdly, it is not necessary to pay as indicated in the payment schedule. If possible, make an amount in excess of the monthly payment. Thus, the amount of the principal debt will decrease faster, which will also reduce overpayment.
Often the bank does not want to write off the entire amount received on the account. And only charges a monthly payment. Therefore it is necessary to notify the bank every month that you are going to make a partial early repayment.
Fourth, you need to familiarize yourself with free ways to deposit money into your account. After all, some banks simply do not have their own cash offices and offer to pay loans through third-party organizations. And for this commission will be charged additionally.
Fifthly, to study the information on penalties in case of late payments.
And most importantly, the key to success in lending lies in a careful study of the contract until its signing. You should ask all the necessary questions to a competent specialist who draws up a contract with you. In no case do not need to rush, especially not looking to sign the proposed documents.
After all, it is easier to ask questions immediately than to spend your nerves and money on the resulting debt pits.