Hello my favorite financial buddy! This is your friendly neighborhood senior high schooler writing another loan article, Frank! Today, we are discussing how long will it take to pay off my loan. Though I suppose since you are here looking at my article, it is your loan we are talking about!
So I think it would not be an exaggeration to say that you want to get right into the answer of how long will it take to pay off my loan, in this case, yours! But come on, my dear reader. Take a chill pill, let us take things slow, and we will be diving into how long will it take to pay off my loan in a hot minute.
Why Would Knowing When Your Loan Will Be Fully Paid Off Matter?
Well, like the question, you might be wondering how knowing when your loan will be fully paid off will ever become useful. But, do not count out the question just yet! That is because it simply makes sense to know when you will be done with your payments.
You see, when I am able to figure out how long will it take to pay off my loan, I would then be able to easily plan ahead about everything that needs to be planned out, financial-wise. If I simply knew that I would be done paying off my loans in somewhere around three months, I could plan a slight change in lifestyle in order to be able to fully pay off the said loan.
Would it not just completely suck if you did not know when your loan is going to be fully paid off, so you go and overprepare, wasting time and other resources when you could just be living easily as you have already gathered the enough funds to pay off the loan in shorter installments?
How Long Will It Take To Pay Off My Loan?
Unfortunately for you, knowing when your loan will be fully paid off needs to be kept track of by way of thought. I suppose the only good thing is that you should and would most likely already know the rates of interest, total loan balance still unpaid, and the annual percentage rate (APR) in case you are paying for longer termed loans. You would know these things because these should be stated immediately before actually acquiring your loan.
In any case, the formula you will need to use will entirely depend on the type of interest that you have. Because there are two choices to a type of interest a lender may have, simple interest and compound interest.
To know how long will it take to pay off my loan, you might want to get familiar with the term simple interest. It is a quick and convenient method of calculating the applied interest rates of any sort of loan you have. You just need to follow one simple formula, hence the name, in order to calculate the interest.
Formula: P x I x N, where P is Principal, I is Daily Interest Rate, and N is the number of days between payments.
To figure out the other type of interest that answers how long will it take to pay off my loan, next is the term compound interest. From the name itself, it is not as simple as it seems. This is because the lender slaps interest on both the principal and the interest itself too.
As an example, let’s say you borrowed a thousand bucks with an Annual Percentage Rate (APR) of 10%. At the end of the year, you have to pay a thousand and a hundred bucks. The year after that, you have to pay a thousand and two hundred ten.
In other words, you might not want to get this loan if you do not want to think, like me!
And you will also need to keep in mind the type of loan that you are responsible for paying off. Like if your loan is strictly an Interest-only loan, then you would only be responsible for paying only the interest for a certain duration of time. In that case, it follows the simple interest formula, though you might need to change a few things!
In order to find out how long will it take to pay off my loan, I will need to keep manual track of it, whether it be through pen and paper, notes, or even just memorizing. But essentially, you really just need to find out the variables such as: leftover loan balance, interest, duration of payment left, type of payment, etc.
And when I finally do find them, I will be able to easily tell how long will it take to pay off my loan!
Read also: “4 Tips On How Can You Reduce Your Total Loan Cost?”
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