I created this online Loan Affordability Calculator in response to a request submitted by the owner of a small car dealership -- one that still does their own financing -- and who used to use a DOS program published by Andrew Tobias, called "Managing Your Money" (MYM, software that I still to this day, but it only works on my old Mac iBook).
Unfortunately the car dealership upgraded their computer operating system and can no longer use MYM.
With his permission, here is an excerpt from the email I received from Patrick Walsh of Atwater Ford:
It would be wonderful if there was a dedicated loan calculator that someone could put in the beginning principal amount, the APR, the payment amount, and then have it compute the # of months.
Then step the payments (as in $200/mo for 12 months, followed by $235/mo for 12 months, followed by $260 for 24 months, and finally $275/month for the final 12 months).
Or with the "baby" balloons, as in $200/mo for 60 months, with a baby balloon of $500 each june and each December.
OR one with $850 each September (one per year as opposed to two per year in the first example).
MYM's loan amortization would ask you to fill in 3 out of the 4 blanks (APR, rate, # of Payments, and payment $ amount) and it would compute the one that was left open.
MYM was a brilliant piece of software that was well ahead of its time. Unfortunately, according to the author, the software hasn't been sold at retail for years and his contract for it ended years before that.
But since I still use MYM (Macintosh version #7), I was able to create a web version of the "Loan Analysis" feature of the software that the car dealership no longer has access to. I have actually used this MYM feature to help answer countless loan-related questions from site visitors over the years.
Here are a few of the many possible uses for the Loan Affordability Calculator.
To see how much loan you can afford based on the amount of the installment payments you can afford to make, enter the interest rate, the number of payments, and the payment amount you can afford. The calculator will then tell you the size of the loan (principal) those terms will equate to.
This use of the calculator is the one that prompted the car dealership to request the calculator. He can now use this calculator to help his small-town customers to purchase the reliable transportation they couldn't otherwise afford.
The car dealer can now enter the principal, rate, and affordable payment amount to calculate the initial number of payments to pay off the loan. He can then use the customer's anticipated raises and lump sum receipts (tax refunds, seasonal income, etc.) to create a graduated payment plan -- with or without "baby" balloons.
If you are paying on an adjustable rate loan, you can enter the original terms and then enter up to 8 rate changes that have occurred in order to get an idea of what your current payoff amount is.
If you want to see how much time and interest you will save by increasing the payment amount, or prepaying a lump sum of principal, the calculator will give a side-by-side comparison of the original terms versus the modified terms.
With that, let's use the loan affordability calculator to calculate the unknown variable, and then recalculate the loan based on up to 8 midterm loan modifications (payment and/or interest rate changes).
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Date of 1st payment Select the month and day, and enter the enter the year for the date of the first payment.
Payment frequency: Select the payment interval stated in the original loan terms.
Principal: If known, enter the principal balance or current payoff amount. Otherwise leave blank and complete the other three fields.
Annual rate percentage: If known, enter the annual interest rate as a percentage (for .065, enter 6.5%). If the interest rate is not known, to save the free loan amortization calculator from making unnecessary iterations, please select your best guess from the drop down menu (default guess is 10%) and the calculator will attempt to calculate the rate for you given the other three known variables.
Number of payments: If known, enter the number of payments remaining on the loan. Otherwise, leave blank and complete the other three fields.
Payment amount: If known, enter the monthly payment amount. Otherwise, leave blank and complete the other three fields.
Unknown variable: This cell will state the the title of the unknown variable that has been calculated, with the amount of the unknown variable located in the right-hand column.
Loan Modifications section: For each modification, enter the number of payments made since the last modification, enter the new rate and/or payment increase, and select this payment or every payment. Once all modifications have been entered, click the Recalculate button.
Total years: This result converts the number of monthly payments remaining to the number of years remaining.
Total payments: This result is the total of all payments between now and when the balance is paid off.
Total interest: This result is the total interest that will be paid between now and when the balance is paid off.