Any financing is for consideration, this means that a sum of money borrowed from a bank or a finance company must be repaid plus interest costs.
But how is the loan payment calculated? What costs do I have to pay for my loan? If you want to calculate the loan installment and the various costs, continue with our article.
In addition to interest, it should be pointed out that normally a loan also includes other costs, although the interest represents the main one. They consist of the costs of preliminary investigation, of sending at home, any notary fees, insurance or technical expertise (see the case of real estate loan), etc.
These other costs can have a profound effect on small loans, ie low-value loans. This is the reason why the APR of a low-value loan tends to be much higher than its TAN.
The first, in fact, expresses the Global Annual Effective Rate, ie it measures all the costs related to a loan. The second, Net Annual Tannoy, indicates only the cost of interest.
To calculate the amount of an installment, you must have three elements in mind:
– the rate applied (we omit, for simplicity, the other costs)
– the capital sum borrowed
– the duration of the loan
On the web there are different sites on mortgages, loans, etc., which guarantee an exact installment loan calculation, inserting precisely these three data, even if it is always better to read carefully the contracts stipulated in the agency and get a statement with detailed costs.
Attention, however, to the type of rate applied. In the case of a personal or finalized loan, a fixed rate is generally applied, ie not variable over time. But if we talk about the particular type of mortgage loan, above all, the real estate one, here the rate could be variable or mixed.
In the first case, this means that it varies with changing market conditions, being tied to the three-month Euribor, therefore, the installment may increase or decrease in the monthly or periodic amount, based on changes in the rate.
In the case of the mixed rate, it is, instead, in the presence of the possibility for the debtor / borrower to pass from the fixed rate to the variable or vice versa, exploiting the opportunities of the market in his favor, possibly within the limits specified in the contract.
In general, whatever rate scheme is applied, each installment will consist of a principal portion and a portion of interest.
The former is growing over time, while the latter decreases. This, because at the beginning the interests are applied on all or almost all the sum borrowed, therefore, they absorb almost all the installment to be paid.
As the repayment takes place, the disbursed capital is paid, therefore, the interest affects a decreasing sum and will have a lesser impact on the installment.
Ultimately, as stated above, for a correct calculation of the loan installment, check carefully the documents issued by the financial company or by the bank when the contract is stipulated!