Fixed Principal Payment Loan Calculator
What is a fixed principal loan?
Fixed Principal Payment Loan
- A loan characterized by a declining payment.
- Amount allocated to principal is the same for each payment.
- Less total interest than “normal,” level payment loans.
A fixed principal loan is a loan in which the borrower repays a fixed portion of the principal each period until the loan is fully paid. The interest is calculated on the unpaid principal balance, which decreases over time as principal payments are made. A declining periodic payment, caused by the lower interest amount, is a core characteristic of a fixed principal loan.
In contrast, a traditional loan has fixed (sometimes called “level”) periodic payments made up of increasing principal and declining interest. The principal portion increases to keep the total payment the same as the interest portion decreases with the declining principal balance.
- Why are fixed principal loans advantageous to borrowers?
- Fixed principal payment loans reduce the total interest paid because the borrower pays down the principal balance faster than with a traditional loan.
The Calculator-Calculate a Payment Schedule Using a Fixed Principal Amount
Information
Instructions for the fixed principal calculator
Enter the four primary inputs:
- Loan Amount: Enter the total amount of the loan. Enter a positive number.
- Number of Payments: Enter the total number of payments you will make. Enter a positive whole number.
- Annual Interest Rate: Enter the annual interest rate as a percentage. For example, if the rate is 5%, enter “5” in this field.
- Payment Amount: Enter the amount of each payment. Enter a positive number.
The secondary inputs must also be set. If you are unsure about any option, leave it at the default setting.
- Payment Frequency: Select how often you will make payments. Options include monthly, bi-weekly, weekly, and other intervals.
- Compounding: Select how often interest is calculated and added to the balance. If the loan documents do not specify, or if you do not know, set this to the same frequency as the payments.
- Payment Method: Select the payment timing. If the first payment is due when the loan originates, set this option to “Advance.” Otherwise, we assume the first payment is due one period after origination, and you must set this to “Arrears.”
These calculators also support “fixed principal” style loans and are feature-rich. Many allow you to set dates and/or add extra payments.
If you try one of the calculators above, set the “Amortization Method” to “Fixed Principal.”
Fixed Principal Payment Calculator Help
A fixed principal payment loan has a declining payment amount. Unlike a typical loan with a level periodic payment, the principal portion remains the same from payment to payment, while the interest portion declines as the principal balance decreases. As a result, the total payment becomes smaller each period. Over the life of the loan, the borrower pays less total interest with this method.
This calculator can solve for any one of four unknowns: “Amount of Loan,” “Number of Payments” (term), “Annual Interest Rate,” or “Periodic Payment.”
Enter 0 for the value you want the calculator to solve.
The term (duration) of the loan is determined by the “Number of Payments” and the “Payment Frequency.” If payments are monthly and the term is four years, enter 48 for “Number of Payments.” If payments are quarterly and the term is ten years, enter 40 for “Number of Payments.”
For most loans, set the “Payment Method” to “Arrears.” Arrears means the funds are disbursed first, and the initial payment is due one period later.
If the first payment is due on the same day the funds are made available, set “Payment Method” to “Advance.” This is typical for leases.
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