How to Calculate Credit Terms
- 1). Obtain a loan calculator. You can purchase a financial calculator at office-supply stores such as Office Depot and Staples, and at other retailers such as Wal-Mart and Target. You can also use online loan calculators provided by Bankrate and WalletPop (see Resources).
- 2). Notify the lender that you would like to obtain the terms of your credit. The lender may disclose this information over the phone or mail you a notification of credit terms. If you have already signed the loan with the lender, you should have been given a copy of the loan agreement, which will disclose the credit terms. For calculation purposes, you will need to know what the interest rate is, whether or not the interest rate is variable or fixed, term of the loan, amount borrowed and payment amount.
- 3). Use the information from the lender or loan agreement to determine the cost of credit. You will need to plug the information into the correct fields on the calculator. The interest rate or annual percentage rate, term of the loan, and amount borrowed are the important factors in determining the payment amount, if the lender has not informed you of a payment. Many consumers think that interest rate alone determines the cost of credit, but the term of the loan is also an important factor.
- 4). Multiply the payment amount by the payments on the loan to determine the total repayment of the loan. This calculation gives you the amount you will have paid the lender if you make all monthly payments on time. If payments are late, you may pay additional interest and late fees that will increase the repayment of the loan.
- 5). Find out the cost of the loan by deducting the amount borrowed from the total repayment of the loan. You will need to deduct what you will or have paid the lender from the amount the lender gave you. This is what it cost you to borrow money from the lender.
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