How to Calculate a Consolidation Debt Loan Monthly Payment

A consolidation loan can provide debt-payment relief. These loans aggregate all (or most) existing debt into a new loan that offers a lower combined interest rate and lower payments. Being able to calculate the correct monthly payment can help you spot errors in a lender's calculations.

Instructions

1. Collect all bills and monthly obligations, and add up both the balances and the monthly payments (in two separate categories). Write down interest rates of all loans, but do not average these numbers, because the resulting interest rate is not a good representation of the total interest paid.

2. Find the correct value for the interest rate by changing the percent into decimal form (for example, 6 percent = 0.06) and then dividing by 12 (for months); a 6 percent interest rate in the equation we're going to use would be .005.

3. Use the following formula to calculate your payment: Pay = P x i (1+i) / (1 + i) - 1, with the following variables: Pay = payment; P = principal value of loan; and i = interest rate per pay period (the number you calculated in Step 2). For example, if a lender offered you a $45,000 consolidation loan at a 10 percent interest rate, the formula would look like this:
   Pay = 45,000 x .00833 (1 + .00833) / (1 + .0083) - 1. The result is: $373.50.

4. Calculate the payments for all proposed loan offers to double-check the math to make sure you understand how the number was derived and that the figures are indeed accurate.

5. Contact your lender if there are any discrepancies.

Resources

• Debt Consolidation