Write an article based on this "Determine the total amount of your loan. Find the loan term. Calculate your interest. Establish your total repayment."
When you borrow money from a bank or other lender to make a large purchase such as a house or a new car, you borrow a specific total amount. This amount will be listed on your loan documents. As an example, assume you are borrowing $150,000 to buy a house, or $30,000 to buy a car. Your loan term is the length of time you'll be paying back your loan. For mortgages, the term typically is 30 years, although terms anywhere between 15 and 40 years are not uncommon. For vehicle purchases, loan terms typically run anywhere from 3 to 6 years. Keep in mind that although loan terms usually are discussed in terms of years, they are calculated in months. For example, if you had a 30-year mortgage, your loan term would be 360 months. For a 5-year vehicle loan, the loan term would be 60 months. The interest on a loan is the amount it costs you to borrow the money, expressed as a percentage of the borrowed amount. The interest rate you are offered will depend on your credit history, the type of loan, and the amount of money you're borrowing. In most cases, your interest rate will not change once the loan term starts. However, it may increase after a few years if you've taken out an adjustable-rate loan. Generally, you'll have either simple interest or compound interest. With simple interest, the interest is calculated solely on the outstanding principal amount. However, with compound interest, the interest rate is applied to both the outstanding principal and the outstanding interest owed. For the purposes of the examples, assume the interest rate on the 30-year home mortgage is a fixed rate of 4.5 percent, while the interest rate on the car loan is 5.25 percent. The total repayment consists of how much it will cost you to pay back your loan over the full loan term, including principal, interest, and any fees. The total repayment figure assumes that you make all payments on time. Keep in mind that your annual interest rate does not reflect the cost of origination or other fees that your lender may charge to service your loan. However, your loan documents may include a figure described as the "effective APR." This amount is the annual interest rate plus any fees. While traditional lenders are required by law to disclose the APR to you, lenders outside the traditional sphere are not. If you're using an alternative lender, make sure you total all the fees and find the APR. You can use APR calculators online for this purpose. While not all fees are financed, all finance fees are included in the APR calculation. Therefore, you should not use APR when calculating an amortization, you should use the note rate (interest rate) calculated based on the total loan amount, which might include some financed fees.