The Repayment Calculator can be used for loans in which a fixed amount is paid back periodically, such as mortgages, auto loans, student loans, and small business loans. For other repayment options, please use the Loan Calculator instead. Include any upfront fees into the calculator to compute the real rate of interest.
Repayment is the act of paying back money previously borrowed from a lender, and failure to repay debt can potentially force a person to declare bankruptcy and/or severely affect credit rating. It is usually done in periodic payments that include some principal and interest. There can possibly be fees involved; when doing calculations, all upfront fees entered will be rolled into the loans.
Concerning mortgages, repayment can be done using fixed or variable rates, or even switched from one to the other during the life of the loan. However, this calculator does not consider variable rate loans. For more information, use the Mortgage Calculator.
In the United States, the government offers specialized plans that are geared specifically for the repayment of federal student loans. Depending on the individual borrower, there are repayment plans that are income-based, plans that extend the term of the loan, or plans specifically for parents or graduate students. Repayment of most federal student loans can be postponed to some point in the future. Federal extended repayment plans can be stretched up to 25 years, but keep in mind that this will result in more interest paid out overall. For more information, use the Student Loan Calculator.
Because they are considered revolving credit, the repayment of credit cards is different from typically structured amortized loans. Whereas the latter requires a set amount to be paid a month, the repayment of revolving credit is more flexible in that the amount can vary accordingly, although the minimum payment due on each credit card each month must be met to avoid penalty. For more information, use the Credit Card Calculator.
Fixed Loan Term
Choose this option to enter a fixed loan term. For instance, the calculator can be used to determine whether a 15-year or 30-year mortgage makes more sense, which is a common conundrum for most people ready to purchase a house. The calculated results will display the monthly installment required to pay off the loan within the specified loan term.
Choose this option to enter a fixed amount that will be due in equal installments each month until the loan and interest are paid in full. For instance, this may be a set amount of disposable income determined by subtracting expenses from income that can be used to pay back a loan. The calculated results will display the loan term required to pay off the loan at this monthly installment.
How to Repay Loans Faster
It is important to first consider whether utilizing any of the strategies below to repay loans faster is actually a good idea. Depending on individual financial situations, it may or may not be wise. While extra payments toward loans are great, they are not absolutely necessary, and there are opportunity costs that deserve consideration. For instance, an emergency fund can come in handy when incidents like medical emergencies or car accidents happen. Even stocks that perform well during good years are more financially beneficial than extra payments towards a low interest mortgage.
Of course, shorter loans will be repaid faster. Not only that, but reducing the length of the loan generally lowers the total amount of interest paid, because less compound interest is being accrued. It’s important to note that shorter terms tend to have higher monthly installments.
If there is no prepayment penalty involved, any extra money going towards a loan will be used to lower the principal amount due. This will speed up the time in which the principal due finally reaches zero, and reduces the amount of interest due because of the smaller principal amount that is owed.
Similar to paying extra, submitting half of the monthly payment every two weeks instead of one single monthly payment can speed up the repayment of loans in two ways. Firstly, less total interest will accrue because payments will lower the principal balance more often. Secondly, biweekly payments for a whole year will equal 26 yearly payments, because there are 52 weeks in a year. This is equivalent to make 13 monthly payments a year. Similar to paying extra, make sure there are no prepayment penalties involved first.
Loan refinancing involves taking out a new loan, sometimes with more favorable terms, in order to pay off a previous loan. There are several ways in which refinancing can help repay loans faster: by refinancing to a shorter-term loan, higher monthly payment, or to a biweekly schedule of payments.