Loan Calculator Formula Reference
Understand how Digital Lending calls payment calculation functions to project loan costs and repayment schedules. Verify the repayment calculations for financial accuracy and compliance. Use these calculations to validate loan projections and explain interest savings or tenure reductions to borrowers.
Required Editions
Available in: Lightning Experience Available in: Professional, Enterprise, and Unlimited Editions |
Review the loan calculator formulas for standard amortization, periodic step-adjustments, and extra payments. These calculations convert annual rates to monthly interest and determine equated monthly installments for loan products, such as balloon and bullet structures.
Amortization Loan Formulas
Formulas apply to fully amortized loans where the borrower pays down the principal through regular installments over the loan's duration.
| Calculation | Description | Formula |
|---|---|---|
| Monthly Interest Rate | Converts the annual interest rate into a monthly decimal rate. | monthlyInterestRate = annualInterestRate / 1200 |
| Monthly Payment | Calculates the fixed installment amount. | monthlyPayment = (principal × monthlyRate) / (1 - (1 + monthlyRate)^(-months)) |
| Monthly Interest | Calculates the interest portion for a specific month based on the starting balance. | interestForMonth = remainingBalance × monthlyInterestRate |
| Monthly Principal | Calculates the installment amount applied to the loan principal. | principalForMonth = monthlyPayment - interestForMonth |
| Remaining Balance | Updates the loan total for the next month by subtracting the principal paid. | remainingBalance = remainingBalance - principalForMonth |
Step-Up and Step-Down Adjustments
Monthly payments can increase (step up), or decrease (step down), based on a designated percentage factor at specific intervals.
- Step-Up Adjustment: newMonthlyPayment = monthlyPayment × (1 + stepFactor / 100)
- Step-Down Adjustment: newMonthlyPayment = monthlyPayment × (1 - stepFactor / 100)
- Determine Recurring Interval: Apply adjustments based on the month of the loan.
- Monthly: Applies every month
- Quarterly: month % 3 == 0
- Half-Yearly: month % 6 == 0
- Annually: month % 12 == 0
Extra Payment Logic
When extra recurring or single payments are made, the system calculates the impact on the principal and the overall loan term.
Recalculation Options
- Reduce Monthly Payments: Recalculates monthly payments for the remaining tenure based on the
new balance.
- Formula: monthlyPayment = (remainingBalance × monthlyRate) / (1 - (1 + monthlyRate)^(-remainingMonths))
- Reduce Loan Term: Calculates the reduction in overall tenure.
- Formula: totalMonthsReduced = loanEndMonthWithoutAdjustments - loanEndMonthWithAdjustments
Extra Payment Frequency Limits
To make sure that extra payments don’t exceed what is still due, the calculator caps recurring payments per month based on frequency:
- Weekly: Up to 4 payments.
- Every two week or Semi-Monthly: Up to 2 payments.
- Monthly or Quarterly or Annually: Up to 1 payment.
Non-Amortization Loans: Balloon and Bullet
Formulas that apply when the loan requires a lump sum payment at the end of the tenure.
Balloon Loan: A loan that doesn't fully amortize over its lifespan. The borrower typically makes regular, smaller payments, which often cover interest and a small amount of principal, for a set period. Then, the borrower pays off the remaining large balance with a single balloon payment at the end of the term.
Bullet Loan: A loan where the borrower pays the entire principal balance in a single lump-sum payment, or bullet, at maturity. The borrower usually makes only interest payments during the life of the loan.
Monthly Payment Formula
To calculate the periodic payment (PMT) when the loan requires a future lump sum, use the following formula:
PMT = [P × r × (1 + r)^n - B × r] / [(1 + r)^n - 1]
Where P = Principal, r = monthly rate, n = tenure in months, and B = payment at maturity.
Final Month Principal Logic
In the final period (n), the principal repayment differs to account for the lump sum.
- Standard Months: The principal portion of the payment is PMT − the accrued interest.
- Final Month (n): The total principal paid = the scheduled maturity payment (B) + the regular principal portion of the final monthly installment.
Aggregation and Savings Summary
The calculator sums monthly data for yearly schedules and total loan impact.
- Total Loan Amount: principal + totalInterestPaid.
- Yearly Aggregations: Yearly interest and principal are the sum (Σ) of their respective monthly portions within that year. The yearly ending balance is the balance at the end of the final month of that year.
- Loan Amount Savings: totalAmountWithoutAdditionalPayments − totalAmountWithAdditionalPayments.
