How Long Will It Take to Pay Off My Loan?

There are so many variables that you have to take into consideration when you’re thinking about taking a loan or if you’ve already borrowed, and that’s why it can be really confusing to calculate how long it will take to pay off the loan. But, don’t worry, as I break it all down for you in this article. Learn pay off loan fast here.

How Long Will It Take Me to Pay Off My Loan? And How Do I Calculate It?

how long to pay off loan

If you’re not one to use a calculator and like doing things the old-school way -by hand-, here are exactly the steps you need to do so, and for which you’ll need to have the following input:

  1. The interest rate
  2. The duration of the loan (term)
  3. The amount of money you’re borrowing (principal)
  4. The monthly payment
  5. Can you get a loan under 18? Find out here.

Tip: You’ll also need to understand the type of interest that will be imposed on the loan application process, which in most cases is either simple or compound.

Calculating Simple Interest

For example, if you borrow $2,000 at 5% for a year, here is how to calculate loan interest:

Interest = Principal * rate * time

Interest =  $2,000 * 0.05 * 1

So, interest = $100.

However, most of the time, loans deal with much larger amounts of money and last for much longer durations. Not to mention, there could be extra charges and fees, including late fees or prepayment fees in the case of a house or a car loan. Check out the “Fees” section of the article for more information on that. What are approved loans? Learn more about approved loans here.

Realistic Example With Amortization Table

how long will it take me to pay off my loan

If you borrow $200,000 at 5% APR (Annual Percentage Rate) with a 30-year term, how much would you be paying? Can you get multiple payday loan at once?

  1. First, you need to convert the annual rate to a monthly one, so you divide it by 12.
  2. Then, you have to calculate the monthly interest by multiplying the outstanding loan balance at the beginning of the month by the monthly rate.
  3. Then, subtract the costs of interest from these monthly payments, and you could track your interest by keeping score in an extra column. Learn what is a payday loan here.
  4. After that, you assign what remains of the monthly payment to repaying the principal, which is how you reduce the outstanding loan balance. Discover the loan repayment formula here.
  5. Next, you calculate the remaining balance and use it at the beginning of the next process.

By repeating the steps above, you’ll be able to notice how the monthly payment is divided into two sections: one that makes up the interest and one that is used to repay the initially borrowed money or the principal.

In a table, it should look something like this for the first 6 months of the first year:

MonthStarting BalanceAmount PaidInterestPrincipalEnding BalanceTotal Interest
1$200,000.00$1,073.64$833.33$240.31$199,759.69$833.33
2$199,759.69$1,073.64$832.33$241.31$199,518.38$1,665.67
3$199,518.38$1,073.64$831.33$242.32$199,276.06$2,496.99
4$199,276.06$1,073.64$830.32$243.33$199,032.74$3,327.31
5$199,032.74$1,073.64$829.30$244.34$198,788.40$4,156.61
6$198,788.40$1,073.64$828.28$245.36$198,543.04$4,984.90

And for the last 6 months of the last year:

MonthStarting BalanceAmount PaidInterestPrincipalEnding BalanceTotal Interest
355$6,348.95$1,073.64$26.45$1,047.19$5,301.76$186,445.11
356$5,301.76$1,073.64$22.09$1,051.55$4,250.21$186,467.20
357$4,250.21$1,073.64$17.71$1,055.93$3,194.27$186,484.91
358$3,194.27$1,073.64$13.31$1,060.33$2,133.94$186,498.22
359$2,133.94$1,073.64$8.89$1,064.75$1,069.19$186,507.11
360$1,069.19$1,073.64$4.45$1,069.19$0.00$186,511.57

However, if you wish to repay the debt off faster, you could increase the amount you pay each month from $1,073.64 to, say, $2,000. In this case, you’d be able to repay the loan in only 130 months instead of 360! Learn how do loans work here.

Fees

how long to pay off my loan

Learn how to get approved for a personal loan as follows. As I’ve mentioned, there are some fees related to borrowing from a lending entity, and these are as follows:

  • An application fee that you have to pay for the loan to be approved.
  • A processing fee that covers the administrative aspects of getting a loan.
  • An origination fee, which is usually associated with mortgages, and it’s basically the price you pay for securing a loan.
  • An annual fee, which is associated with credit cards.
  • A late fee, which you have to pay in the case that you miss your payment date.
  • Prepayment fee, which is imposed on you if you pay off the loan earlier than expected. This is set by lending entities because they usually expect to make consistent income from the interest you have to pay, and if you pay the loan early, that will meddle with this schedule. Discover what a loan with a paid default is here.

It’s worth mentioning that not all borrowers have to pay all these fees, of course. It depends on the type of loan you’re taking and how strict you are when it comes to following the rules you agree on, like how much you pay monthly, when you make the payments, and when you repay the whole amount back. Learn what happens when you default on a loan here.

Final Thoughts

While it may be a little tough to decide on which loan to take when you don’t know how long it will take for you to pay the loan off, especially with plenty of offers, which is why you need to calculate the total cost of a loan before you make that decision. Learn the unsecured loans meaning here.

This includes making amortization tables as well as understanding the interest and fees associated with the loan. And while opting for a low APR might seem tempting, sometimes it’s not worth it if the closing fees and costs are too high. And remember, at the end of the day, you do have a say regarding how long it would take for you to pay off a loan, and the keyword here is the interest rate and repayment amount you opt for. Learn what is loan here.

About the Author

Lucy has over a decade of experience in finance. She is currently the content curator here at Perfect Payday.

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