One of the major things to understand before taking a loan is the loan’s repayment schedule, which basically defines when & how much you will pay back within the loan’s tenure. Every loan, be it personal loan, car loan, study loan, mortgage loan gives you access to funds which must be paid back at a certain interest rate over a specified duration.
A repayment plan provides important information regarding how much they will require you to pay monthly, and this includes the accrued interest which is spread within the loan tenure.
Hence, understanding loan repayment schedules helps in making the right decision in taking a loan and planning your repayment strategy.
What is a loan repayment schedule?
A loan repayment schedule is a list of all the payments they require a borrower to make throughout the lifetime of a loan. It gives you the most basic and intrinsic information and knowledge about your loan and how you’ll repay it. Each payment on the list gets broken down according to the interest and principal. It shows you how much you would pay monthly and the remaining down payments yet to be made.
How to calculate loan repayments schedule
There are two ways to calculate your loan repayment schedule. They are:
How to calculate your loan repayment schedule when you know your monthly payment
When you know your monthly payment, it is pretty much easy to calculate your monthly loan repayment. From the first month, multiply the interest rate with the total loan. Hence, for a loan with monthly repayments, divide your result by twelve (12) to find out the monthly interest. Also note weekly repayments. Remove the interest gotten from the total monthly payment and the rest of the amount goes to the principal.
For the second month, apply the same method, but the figure to multiply the interest with is the remaining figure from month one and not the original loan amount. This method goes down till the principal gets to zero (0).
How to calculate your loan repayment schedule when you don’t know your monthly repayment
Often people only know the loan amount they want to take and the interest rate attached to it. They either forget to know their monthly repayment. To calculate and work out your loan repayment schedule for the said period of your loan duration, you follow two methods. The first method is through:
- Using a loan calculator or
- The excel sheet
Using the loan calculator
The loan calculator gives you the ability to enter your loan amount, interest rate, and repayment duration. You follow the method to work the next month. Remember to keep using the remaining balance for each month and not the original loan amount.
Using the Excel sheet
By using the excel sheet, you input it directly on the software using the PMT function. The PMT function calculates and shows you the payment based on the interest rate, number of payments, and principal amount.
Enter this on the excel sheet as viz:
=PMT(5%/12,360,240000). Showing a result of ksh.1,288
Detailed information on the loan repayment schedule paper
The information that is seen on the loan repayment schedule paper are:
- The starting balance of the loan repayment amount
- The interest paid for each month
- The principal amount paid for each month
- The new balance for the next month and the other subsequent months.
Importance of loan repayment schedule
The basic importance of loan repayments schedule is:
- It helps you know how much you pay a month and throughout the lifetime of the loan
- Detects, curtains and save excess or extra payments
- Saves you much stress on thinking whether or not you are cheated by the lender.
- Gives you full knowledge on your loan and also your future loans.
The loan repayment schedule and the information it contains is very crucial to understand the inn and outs of your loan. It shows you how sensible and valuable it could be to pay off your loans. When you learn how to calculate your loan schedule, it gives you full knowledge on the loan.