Debt Consolidation Calculator

Debt Consolidation Calculator

Debt consolidation is when the person who has borrowed money would like to merge its existing multiple loans that are bearing high rate of interest to low bearing rate of interest one which would be a consolidated loan and further the person who has borrowed money could also apply their savings which are made monthly in repayment and hence will be able to save interest and will help reduce the debt burden. Here the debt consolidation calculator will make all such calculations easy.

Debt Consolidation Calculator

[∑PV x R x (1+R)^N]/[(1+R)^N-1]


Wherein,
  • ∑PV is the sum of present value of outstanding Balances
  • R is the new rate of interest
  • N is the remaining number of payments
Present Value of Outstanding Balances
$
New Rate of Interest
%
Remaining Number of Payments
$

How to Calculate using the Debt Consolidation Loan Calculator?

Step #1 – First, find out the present value of the outstanding balances on the multiple loans

PV = L*[1-(1+i)-n/r]

Step #2  – Next would be to find out the new installment amount based on existing outstanding balances with a lower rate of interest using the below formula

New Loan Installment = [∑PV*R*(1+R)^N]/[(1+R)^N-1

Step #3 – Now calculate the period within which the debt can be paid off

nPVA = In[(1-PV(R)/L’)-1]/In (1+R)

Wherein,

  • PV is the present value of Outstanding Balance
  • ∑PV is the sum of the present value of outstanding balances
  • L is the existing Payment
  • L’ is the new Payment
  • i is the old rate of interest
  • R is the new rate of interest
  • n is the frequency of payments
  • N is the remaining number of payments
  • nPVA is the number of periodical payments
You can download this Debt Consolidated Calculator Excel Template here – Debt Consolidated Calculator Excel Template

Debt Consolidation Loan Calculator Examples

Example #1

Suppose that Mr. X has two debt outstanding: one is for $45,987, and another one is for $15,788. The rate of interest was quite high, and hence Mr. X decided to convert them into a consolidated loan for 4 years with a rate of interest 9.75%.

Based on the given information, you are required to calculate the new installment amount of the consolidated debt

Solution:

  • We have two loans outstanding one is for $45,987 and the second one is $15,788, and total outstanding debt would be $61,775
Debt Consolidation Calculator Example 1 (Debt Amount)
  • The rate of interest would be 9.75%/12, which is 0.81%
Debt Consolidation Calculator Example 1 (Monthly Rate)
New Loan Installment = [∑PV x R x (1+R)^N]/[(1+R)^N-1
Debt Consolidation Calculator Example 1 (New installment)

= [61,775 x 0.81% x (1+0.81%)^48] / [(1+0.81%)^48-1]

= $1,559.37

Hence, if Mr. X wishes to consolidate the loan, then he needs to pay $1,559.37 on a monthly basis for 4 years.

Example #2

Sunita Williams has taken two loans and the details of which are given below:

Sunita has recently received an offer from Bank to merge the debt into one with the duration being of the equivalent of the longest outstanding tenure. The rate of interest offered is 9%. The current monthly installment she is paying is $619.88 and $913.07, respectively.

Based on the given information, you are required to calculate the new installment amount of the consolidated loan and the tenure within which the debt can pay off fully.

Solution:

We need to calculate the present valuePresent ValuePresent Value (PV) is the today's value of money you expect to get from future income. It is computed as the sum of future investment returns discounted at a certain rate of return expectation.read more of the current outstanding Debt balance, which can be calculated per below formula:

Student Loan

  • Rate of interest applicable on monthly basis = 11/12 = 0.92%
Debt Consolidation Calculator Example 2 (Monthly Rate)
  • The remaining period is 7 years, which is 84 months.
PV = L*[1-(1+i)-n/r]
Debt Consolidation Calculator Example 2 (Present Value)

= $619.88*[1-(1+0.92%)-84/0.92%]

= $36,202.50

Auto Loan

  • Rate of interest applicable on monthly basis = 10/12 = 0.83%
Example 2 Auto Loan (monthly rate)
  • The remaining period is 5 years which is 60 months.
PV = L*[1-(1+i)-n/r]
Example 2 Auto Loan (Present Value)

= $913.07 x [1 – (1+0.83%)-60 / 0.83%]

= $42,973.75

  • Consolidated outstanding loan
Example 2 Consolidated.png

= $36,202.50 + $42,973.75

= $79,176.25

  • We will now calculate the new installment amount by using the below formula, taking a new interest rate, which is (9%/12) 0.75%, tenure of the longest loan outstanding, which is 84 months.
New Loan Installment = [∑PV x R x (1+R)^N]/[(1+R)^N-1
Debt Consolidation Calculator Example 2 (New installment)

= [79,176.25 x 0.75% x (1+0.75%)^84] / [(1+0.75%)^84-1]

= $1,532.94

Tenure within which to pay off a consolidated loan

  • Now, we shall calculate within what span of time will the consolidated loan be cleared off
nPVA = In[(1-PV(i)/L’)-1]/In(1+i)
Debt Consolidation Calculator Example 2 (nPVA)

= In [{(1-79,176.25*(0.75%)/1,532.94}-1]/In(1+0.75%)

= 65.58 months

Hence, the debt can be cleared off within 5 years and 6 months with a new installment.

Advantages

Disadvantages

  • There could be a modest impact on credit score due to the renegotiation of multiple loans into one single consolidation loan, as that would reflect the inability to repaying the loans.
  • Due to liquidity crunches also, the debt is consolidated, which can be issued at a higher rate of interest than the individuals one. And hence the loan which was repaid at lower interest would shift to the higher-paying rate of interest.

Important Points to be noted

The following points need to be noted while consolidating the debt

  • The borrower should have multiple debts outstanding
  • Either Bank would have offered to the borrower to consolidate the loans at a lower rate due to his good credit score, or the borrower would wish to consolidate if he is defaulting on multiple loans.
  • There could be terms such as minimum outstanding loan amount should be $100,000 in certain cases in order to consolidate or minimum tenure remaining should be 3 or more years.

Conclusion

Hence, whether its a secured loanSecured LoanA secured loan is one where the borrower pledges his/her assets as a collateral to the issuer as a security. In the event of nonpayment of the loan, the issuer has the right to sell or transfer the secured property in order to recover the balance owed.read more or unsecured loan, the moral of the story is that either the borrower can consolidate those loans by paying less interest and pay it earlier or consolidate the loan and pay it more than earlier due to liquidity crunches. These loans that are merge don’t get deleted but are simply transfer.

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This has been a guide to Debt Consolidation Loan Calculator. Here we provide you the calculator that is used to calculate the new installment amount of the consolidated loan and the tenure within which the debt can pay off fully, along with examples for better understanding. You may also take a look at some of our useful articles –