Aiyoh, a lot of Singaporeans very stress because they stuck with loans, tied to jobs they don’t like leh. Everyday go work just for the salary to pay off loan, very sian one. If never manage loan properly, sibeh , jialat,lol . financial problem sure come one. Interest build up, payment late, then everything start to snowball, sure die lah. Better learn how to manage money properly, if not sure kena big trouble in future. Financial planning and discipline very important, otherwise can lead to financial catastrophe.
How to Calculate Manually: Formula for Amortizing Loan Payment
Loan Payment Calculation Formula
$$Loan Payment=AmountDiscount Factor\text{Loan Payment} = \frac{\text{Amount}}{\text{Discount Factor}}$$
or
$$P=ADP = \frac{A}{D}$$
where:
- PP = Periodic Loan Payment (typically monthly)
- AA = Total Loan Amount
- DD = Discount Factor
Discount Factor Calculation
$$D=(1+i)n−1i(1+i)nD = \frac{(1 + i)^n – 1}{i(1 + i)^n}$$
where:
- ii = Annual interest rate divided by the number of periodic payments
- nn = Payments per year multiplied by the number of years
Example Calculation
Given:
- A=A = Loan Amount = S$300,000
- i=i = 6% annual interest rate, calculated as $$6100÷12=0.005\frac{6}{100} \div 12 = 0.005$$
- n=n = 30-year loan term, calculated as 12 payments per year ×\times 30 years = 360
Calculate Discount Factor: $$D=(1+0.005)360−10.005(1+0.005)360D = \frac{(1 + 0.005)^{360} – 1}{0.005(1 + 0.005)^{360}}$$
Calculate Loan Payment: $$P=300,000DP = \frac{300,000}{D}$$
Given the discount factor DD, calculate PP as follows: $$D=(1+0.005)360−10.005(1+0.005)360≈166.7916D = \frac{(1 + 0.005)^{360} – 1}{0.005(1 + 0.005)^{360}} \approx 166.7916$$
$$P=300,000166.7916≈1,798.65P = \frac{300,000}{166.7916} \approx 1,798.65$$
Thus, the monthly loan payment is approximately S$1,798.65.
Interest Calculation
- Interest Paid for the First Month:
$$Interest Paid=0.005×300,000=1,500\text{Interest Paid} = 0.005 \times 300,000 = 1,500$$
- New Principal Balance for the Second Month:
$$New Principal=300,000−(1,798.65−1,500)=299,701.35\text{New Principal} = 300,000 – (1,798.65 – 1,500) = 299,701.35
$$
- Interest Paid for the Second Month:
$$Interest Paid=0.005×299,701.35=1,498.51\text{Interest Paid} = 0.005 \times 299,701.35 = 1,498.51$$
- New Principal Balance for the Third Month:
$$New Principal=299,701.35−(1,798.65−1,498.51)=299,401.21\text{New Principal} = 299,701.35 – (1,798.65 – 1,498.51)
= 299,401.21$$
This process is repeated for 360 months, or alternatively, the formula can be inputted into an Excel spreadsheet for automation.
Total Interest Paid Calculation
((Monthly Payment x Periodic Monthly Payment x Numbers of Years Paying Back-1)+(Monthly Payment x 11)+Last Payment)) – ( Principal Amount Borrowed)
=( (S$1798.65 x 12 x 29)+((S$1798.65 x11)+ S$1276) – S$300,000
= S$ 347185.61