How to Calculate Debt Service Payments
Learn the meaning of debt service., Calculate monthly payments on debt., Calculate total monthly debt service payments.
Step-by-Step Guide
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Step 1: Learn the meaning of debt service.
Debt service is the amount of cash needed to pay interest and principal owed on a debt for a specific period of time.
It is usually calculated on an annual basis.
Businesses or individuals may need to know their total debt service when applying for a loan.An individual’s debt service might include a mortgage and student loans.
Debt service for companies includes the principal and the interest on outstanding loans.
An individual or company that cannot afford to make the payments is said to be “unable to service the debt.” -
Step 2: Calculate monthly payments on debt.
In most cases, your lender calculates your monthly payments when you are approved for a loan.
However, you can calculate the monthly payments yourself.
You can search online for a payment calculator or do the equation by hand.
To calculate monthly payments on a debt, first calculate the rate per month by dividing the annual interest rate by
12.
Then, calculate the monthly payment on each loan using the following formula:
A=P/{\displaystyle A=P{/}}.
In this formula, A = amount per month, P = principal (loan amount), r = interest rate per period and n = total number of payments.For example, suppose you purchased a $21,000 car and you put down a $1,000 down payment.
You need to borrow $20,000, so you take out a 60-month loan at an annual interest rate of
7.5 percent.
Calculate the interest rate per period (month) by dividing
7.5/12 =
0.625 percent per month.
Plug in the values to the formula:
A=/{\displaystyle A={/}}.
In this example, the total monthly payment would be $400.76. , Begin by calculating the monthly payment for each of your loans.
Total the monthly payments for all of your loans by adding all of the monthly payments together.
Once you know your total debt service payments, you can calculate the debt service ratio.
For example, suppose in addition to the car loan for $400.76 per month, you have a mortgage payment for $823.45 per month and a student loan payment of $147.89 per month.
Your total debt service payments would be $400.76 + $823.45 + $147.89 = $1,372.10. -
Step 3: Calculate total monthly debt service payments.
Detailed Guide
Debt service is the amount of cash needed to pay interest and principal owed on a debt for a specific period of time.
It is usually calculated on an annual basis.
Businesses or individuals may need to know their total debt service when applying for a loan.An individual’s debt service might include a mortgage and student loans.
Debt service for companies includes the principal and the interest on outstanding loans.
An individual or company that cannot afford to make the payments is said to be “unable to service the debt.”
In most cases, your lender calculates your monthly payments when you are approved for a loan.
However, you can calculate the monthly payments yourself.
You can search online for a payment calculator or do the equation by hand.
To calculate monthly payments on a debt, first calculate the rate per month by dividing the annual interest rate by
12.
Then, calculate the monthly payment on each loan using the following formula:
A=P/{\displaystyle A=P{/}}.
In this formula, A = amount per month, P = principal (loan amount), r = interest rate per period and n = total number of payments.For example, suppose you purchased a $21,000 car and you put down a $1,000 down payment.
You need to borrow $20,000, so you take out a 60-month loan at an annual interest rate of
7.5 percent.
Calculate the interest rate per period (month) by dividing
7.5/12 =
0.625 percent per month.
Plug in the values to the formula:
A=/{\displaystyle A={/}}.
In this example, the total monthly payment would be $400.76. , Begin by calculating the monthly payment for each of your loans.
Total the monthly payments for all of your loans by adding all of the monthly payments together.
Once you know your total debt service payments, you can calculate the debt service ratio.
For example, suppose in addition to the car loan for $400.76 per month, you have a mortgage payment for $823.45 per month and a student loan payment of $147.89 per month.
Your total debt service payments would be $400.76 + $823.45 + $147.89 = $1,372.10.
About the Author
Lori Gonzalez
A passionate writer with expertise in practical skills topics. Loves sharing practical knowledge.
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