Loans & Calculations

[XennoX]

As per the title I'm trying to do calculations related to my loan.

The details about the loan:

Principal Amount: R 50 000
Interest Rate: 8.5% Per Annum
Term: 36 months

So using the formula

A = P(1+r/t)^nt

Where:

A - Final Amount
P - Principal Amount
r - interest rate (per annum)
t - Length of the loan
n - Compound period

So when I whack this into the calculator (Excel) I get this value as my total cost of loan as R 63 864.46. Using the FNB Loan Repayment Calculator, whacking in those values and taking the monthly repayments and multiplying them by 36 I get the value of R56821.68.

Why the discrepancy?

 

[Polygon]

http://www.thecalculatorsite.com/finance/calculators/loancalculator.php

That calculator comes to 56,821.57.

The formula for it is below the page:

Monthly payment = [rate + rate / ( (1+rate) ^ months -1) ] x principal loan amount

 

[AlmightyBender]

Your excel calc is likely wrong as I'm also getting R56k

 

[XennoX]

OK. I made a fundamental error. I used the incorrect formula. The formula I used was one for generating interest on an investment that never experiences outside changes. That is there is no deposit or withdrawal from the account and thus interest accrual is the only way for the value to change.

 

[Jehosefat]

The discrepancy is because your excel calculation is not taking into account the monthly repayments as is calculating the interest based on the full balance at each point in time.

 

[Pegasus]

Try the FV function in Excel.

From the Excel help file:

FV(rate,nper,pmt,[pv],[type])

For a more complete description of the arguments in FV and for more information on annuity functions, see PV.

The FV function syntax has the following arguments:
Rate Required. The interest rate per period.
Nper Required. The total number of payment periods in an annuity.
Pmt Required. The payment made each period; it cannot change over the life of the annuity. Typically, pmt contains principal and interest but no other fees or taxes. If pmt is omitted, you must include the pv argument.
Pv Optional. The present value, or the lump-sum amount that a series of future payments is worth right now. If pv is omitted, it is assumed to be 0 (zero), and you must include the pmt argument.
Type Optional. The number 0 or 1 and indicates when payments are due. If type is omitted, it is assumed to be 0.



Set type equal to

If payments are due

0 At the end of the period
1 At the beginning of the period

There are examples at the bottom as well.

 

[creeper]

The discrepancy is because your excel calculation is not taking into account the monthly repayments as is calculating the interest based on the full balance at each point in time.

Remember, if paid monthly, compounded monthly, the FV = (interest/12,period in months, PV, PMT etc.)

The 12 is important