Loan Terms

• The four main parts of a loan are the interest rate, loan amount, monthly payment amount and length of amortization (how long it takes, or how many payments you need to make, until the loan is paid off). When you know three of these factors, you can calculate the fourth. Financial calculators make this easy to do. Generally, you want to calculate either the loan amount or the monthly payment amount. You may want to figure the monthly payment for a given loan. Or you may want to figure the loan amount that a given monthly payment can obtain.
  
  

Financial Calculator

• To figure the loan or payment amount, you need to enter the number of payments (or periods) the loan has. For example, a 30-year loan with monthly payments has 360 payments (or periods). This function may be called N for number. You also have to enter the monthly interest rate. This is the annual nominal rate divided by 12. The loan amount is the present value because the loan gives you the present value of your future payments. Enter this to calculate the monthly payment amount, often called PMT. Enter the monthly payment amount to calculate the present value, or loan amount.
  
  

Amortization Table

• You pay interest each month on the remaining principal, or the loan balance. The interest amount is the loan balance times the periodic interest rate. Whatever is left over (from the monthly payment amount) goes toward the principal payback, and your loan balance is less accordingly. You can manually create an amortization table by repeating this process for each month's payment. Spreadsheet programs make this easy to do. The amortization table will show you each month's principal amount, interest amount and loan balance.
  
  

Loan Balance

• You can also calculate your current loan balance with a financial calculator the same way you calculate the original loan amount. The interest rate and monthly payments stay the same. The amount of payments left until completion (N) is altered. Enter the current amount left. The present value is your current loan balance.