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How to Compute the Remaining Balance on a Loan
By JLP | June 14, 2006
Did you know that there is a formula that will tell you the remaining balance on a loan? There is and I am going to show you how to perform the calculation.
For Example
Let’s say you took out a $25,000/60 month (5 years) loan with a 7% interest rate to buy a car. Your monthly payment is $495.03. You have made 12 payments on the loan and you want to know what your loan balance is. To perform this calculation, you need to use this scary-looking formula:
Filling in the information that we have, the formula looks like this:
Did you get all that? If your answer was different from mine, it is due to rounding. However, your answer should be pretty close to the answer I got. So, this tells us that 12 months into the $25,000 loan, you still owe over $20,672.
If you didn’t understand this, don’t worry. I created The Remaining Loan Balance Calculator to help you out.
Topics: Financial Math Basics | 4 Comments »
June 16th, 2006 at 2:38 am
[...] All Financial Matters elucidates how to calculate the remaining balance on a loan. (Congrats on your mention on MSNBC.com!) [...]
June 16th, 2006 at 5:31 am
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June 17th, 2006 at 5:06 pm
I don’t know if it is appropriate to post a question in here. Please forgive me if this is a breach of etiquette, but I’m new to this and only discovered your blog this afternoon. I would be very grateful for a bit of advice.
I’m 44 and would like to retire at 65. The problem is that
I have student loans that total approximately $110,000 with an interest rate of 6.125% (the rate will go down to 5.125% in about two and a half years). I’m currently paying $740 per month and the loans should be paid off in about 28 years, more or less.
I am also currently putting $600 per month into various mutual funds which I planned to use to supplement my retirement benefits and social security benefits (if there are any).
Should I direct some of the money I’m putting into the mutual funds towards the principle of my studnet loan? I only make $64,000 per year so the $600 I’m investing is about all that I have left after paying living expenses.
Thank you for your consideration.
Steve
July 22nd, 2006 at 4:16 pm
Hi, there’s actually a typo in the formula, although the example was computed correctly:
For brevity, let’s have
A = amount borrowed
P = payment
I = i / (12 * 100)
The formula as shown above is:
A * (1+I)^n – [ P/I * (1+I)^n - 1 ]
It should instead be stated as:
A * (1+I)^n – [ P/I * ( (1+I)^n - 1 ) ]