When you take out a personal loan, repayment is a major concern. This exercise will help you plan your loan repayment – no more guesswork.
You will need:
- Loan repayment printable (PDF at the link)
- A calculator and scratch pad
- If you followed along with Money Management 101, your binder or folder
- Recent billing statements/your loan agreement
- The current principal balance and interest rate for your loan
Here is one way to use this worksheet. For the sample work shown below, we are going off of a loan of $1,000 with a 36.5% annual interest rate, a 30-day billing cycle and a $50.00 minimum payment in the first billing cycle.
- Write the name of the loan holder, the current principal balance, the annual interest rate, and your minimum payment amount. Using our formula, write out your periodic interest rate.
- For the first period, write out the payment amount billed in your statement.
- Apply your periodic interest rate to your current principal balance to find the amount of interest charged in the first period. Write the charged interest in the next column.
- On your scratch pad, subtract the interest charged from the payment amount to find how much principal was paid this period. Subtract principal paid from your current principal balance to find your new principal balance. Write your new principal balance in the final column.
- Repeat this process for each billing period, using the previous period’s new principal balance for your calculations as you go.
- Add up all your payments for your total payment amount.
- Subtract your final principal balance from your starting principal balance to find your total principal paid this year.
- On your scratch pad, compare your principal paid to your beginning principal balance. Estimate how many months it will take you to pay off your loan.
This is a long and tiresome process, but it gets easier with practice. To see how much of a difference paying more than the minimum makes, try doing a second worksheet where you round each payment up to the next $5, and see how much more principal is paid in a year.