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Loan Balance Formula:
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The loan balance formula calculates the remaining principal amount owed on a loan after a certain number of payments have been made. It accounts for both the interest accrued and the principal paid down over time.
The calculator uses the loan balance formula:
Where:
Explanation: The formula calculates how much of the original principal remains after accounting for the payments made and the interest accrued.
Details: Knowing your remaining loan balance helps with financial planning, refinancing decisions, and understanding how much equity you've built in an asset.
Tips: Enter the original loan amount, monthly interest rate (as a decimal), total loan term in months, and number of payments already made. All values must be valid (principal > 0, rate between 0-1, term > 0, paid ≥ 0).
Q1: How do I convert annual interest rate to monthly?
A: Divide the annual rate by 12 (for monthly payments). For example, 6% annual becomes 0.06/12 = 0.005 monthly.
Q2: Why does my balance decrease slowly at first?
A: In amortizing loans, early payments are mostly interest, with more principal being paid down in later payments.
Q3: Can I use this for any type of loan?
A: This works for standard amortizing loans (like mortgages and car loans) but not for interest-only or balloon payment loans.
Q4: How accurate is this calculation?
A: It's mathematically precise for fixed-rate loans with consistent payments. Variable-rate loans would require more complex calculations.
Q5: What if I've made extra payments?
A: This calculator assumes regular scheduled payments. Extra payments would result in a lower balance than calculated here.