How To Calculate Your Monthly Installments
Buying on credit is one of the most popular methods of buying and in these difficult economic times, it has become more popular than buying in cash. When one buys on credit, the full purchase price including interest is repaid in monthly installments. One’s monthly installments vary and can be spread over six months up to 54 months, depending on the goods purchased. For vehicles, installments are usually spread over about 36 to 54 months, and for smaller household goods like food or furniture, it can be between 6 and 24 months. It is therefore highly important to know how to calculate monthly installments when one buys on credit.
How to calculate monthly installments?
To calculate the monthly installment for a loan, one will need the loan value, the annual percentage rate. If the loan is taken over a few months or a few years, the loan is expressed in months, for example, 24 to 36 months to pay, and if a loan is over a long period of time, involving many years, the loan is expressed in years, 20 years for example in the case of mortgage loans. However to calculate monthly installments, the equation must use months not years.
The first step is to convert years into months in order to ascertain or calculate the monthly installment. For example, six years is equated to 72 months. The next step is to calculate the monthly interest rate by dividing the annual percentage rate (APR) by 12.Once you have the loan value, you can use the loan value, the monthly interest rate and the term in months in an equation in order to get the monthly installment.
You can also work on an excel spreadsheet to calculate the monthly installment payable for a loan or hire purchase. When using Excel, you can go to the Excel toolbar. From the Excel toolbar, you can select and click on Insert. From Insert, then select and click on Function. You can scroll down and click on PMT or PPMT functions to calculate monthly installments. A little pop up box should then appear. Using Excel is easier than doing the calculations manually.
Interest built into your monthly Installment
When you buy goods on credit, the interest which you will pay is built into your monthly installments. The bank or store therefore adds the interest per month onto your monthly installment. Interest is usually charged on your debt per time. When you pay your installments on time and also make a payment of added deposit with your monthly payments, this will reduce your debt and reduce also the amount you will pay in interest in overall.
The Credit Provider does all calculations beforehand and determines your monthly installment
From the banks giving personal bank loans, motor vehicle finance or mortgage bonds, or a furniture shop allowing you to buy your household furniture on hire purchase; all credit providers calculate your monthly installments and add interest beforehand. As a creditor, you are given information and documents to sign agreeing to the terms and conditions already determined and calculated by your credit provider. Although this is the case and chances that you will be called upon to know how to calculate your monthly installments on your own are very slim; this information is important to you. Knowledge is power and with this knowledge, you can do your own calculations and guard against being overcharged. When you know how monthly installments are calculated, you can query your credit provider’s amount if overcharged.