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Loan calculators

Posted on 2013-12-19
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Last Modified: 2013-12-20
Hello

I am looking into buying a loan calculator for a company I am making a website for. I am no maths expert but I can plug figures into a formula :)

I have looked at this calculator as it was recommended to me.
http://www.financecalcs.co.uk/smartcalcs/LoanCalculatorquote.php

However it doesnt give the same answers as other calculators i have checked it against such as this one
http://www.efunda.com/formulae/finance/loan_calculator.cfm

If i add a loan of 10,000 with 6% interest over 12 months (and everything else set to 0) on the first calculator i get a monthly repayment of $883.33

However if i add the same figures to the second calculator I get a repayment of 860.66. I can see the formula used by the second one and I have plugged the figures in and get the same amount myself so I am happy with that one. However I can't check the first calculator as there is no formula shown

So this raises the question that the first calculator must use a different formula. Do you know what formula the first calculator might be using? Is it better or more sophisticated? I am thinking perhaps that is why it was recommended to me.

Thanks a lot
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Question by:andieje
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LVL 37

Expert Comment

by:TommySzalapski
ID: 39729525
Better or more sophisticated? No.
Uses a different algorithm? Yes.

The first one you have that gave you the formula is the same as the algorithm by bank uses for my loans (I wrote up a spreadsheet and it matches perfectly using that formula).

The second one may compound the interest daily, I'll do some math and check back, but the first one is good and the formula is there so you don't need to buy anything.
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Author Comment

by:andieje
ID: 39729925
I was recommended to get the second one because it does the APR calculation (which apparently there isnt a reliable formula for or something???) but I'm not happy to get something if I dont know what formula it is using .
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Author Comment

by:andieje
ID: 39729960
I checked and that loan calculator doesnt seem to be compounding interest daily. Im not sure how it gets its repayments so high
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LVL 37

Expert Comment

by:TommySzalapski
ID: 39730004
it does the APR calculation (which apparently there isnt a reliable formula for or something???)
No. APR is just what the rate really is per year when it is compounded. If you see one in a GFE or something, it can optionally adjust for things like closing costs, etc.

Again, that one with the formula matches exactly what I see from my mortgage with my bank. They are using that one (or something that amounts to the same thing).

I also don't see how the 11.5% "APR" applies to anything. The total cost for the loan (according to them) is 599.96 which is nowhere near 11.5%. It's not even half.
(1+(.06)/12)^12 should give you the APR which is 6.168%
Even compounded continuously should give an APR of 6.184% or so.
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LVL 37

Accepted Solution

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TommySzalapski earned 500 total points
ID: 39730019
Here's another reason to take that calculator with a grain of salt.

Put in 0% interest and see how it goes. Notice how it doesn't handle rounding very well (off by .04 pounds).

That made me notice what it was doing.

10,000*.06 = 600
10,000+600 = 10600
10600/12 = 833.33333
truncate to get 833.33

They are not compounding at all.
They are just charging you the full interest up front and then having you pay a flat percentage of that every month.
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Author Comment

by:andieje
ID: 39730054
I think we have got confused between calculators. The first one doesnt have a formula. I would like to know what formula it uses. I also dont understand how it gets an APR of 11.5% on a loan with 6% interest when there are no arrangement fees or anything else adding to the cost
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LVL 37

Expert Comment

by:TommySzalapski
ID: 39730143
Yes. I said "first" when I meant "second".

The one with the formula matches how the banks do it.

The one without the formula is just charging you the full interest one-time up front (see my last post, the formula is total*(1+rate)/months). How they got 11.5% APR is still a mystery to me. However, since their rounding is faulty and their algorithm doesn't match anything anyone actually uses, I wouldn't worry about their APR calculation much. It's probably wrong too.
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Author Comment

by:andieje
ID: 39730152
Thanks very much. I wont use it :)
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LVL 37

Expert Comment

by:TommySzalapski
ID: 39730166
The formula I gave is technically only accurate for a 12 month period.
They seem to be compounding yearly, but up front instead of retroactively.
In either case, it's still not the way anyone else does it that I have ever seen, I just felt I should clarify since I hate leaving wrong information out there.
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LVL 37

Expert Comment

by:TommySzalapski
ID: 39732084
Grrr... Last update. They don't compound. They just charge 1/12 of the rate for every month of the term.

So the formula is
payment = (total*(1+rate/100)*(months/12))/months
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