How to use the loan calculator and calculation principles
A loan calculator is a tool that allows you to check in advance how much you need to repay each month and the total interest over the entire period when borrowing money from a financial institution. It can be used for all loans with fixed repayment periods, such as mortgages, personal loans, Jeonse loans, and car installments.
Equal Principal and Interest Repayment Calculation Formula
Monthly Payment = Loan Principal × Monthly Interest Rate ÷ (1 − (1 + Monthly Interest Rate)−Number of Repayment Months)
Monthly interest rate = Annual interest rate ÷ 12. For example, if the annual rate is 4.51 TP3T, the monthly interest rate is 4.51 TP3T ÷ 12 = 0.3751 TP3T. The monthly payment amount is fixed, but the proportion of interest is high in the beginning, and the proportion of principal repayment increases as the period progresses.
What is equal principal repayment?
This is a method where the principal is repaid in equal monthly installments, and interest is paid additionally on the remaining principal. Although the initial payments are high, they decrease over time, and the total interest is lower than that of equal principal and interest repayment.
💡 Which method is advantageous? Total interest savings → Equal principal repayment. Convenience in managing monthly budget → Equal principal and interest repayment. If you have spare cash initially, consider equal principal repayment.
Relationship between loan interest rates and terms
Even if you borrow the same amount, extending the term reduces the monthly payment but significantly increases the total interest. For example, when borrowing 300 million won at an annual interest rate of 41 TP3 T, the total interest is approximately 132 million won when repaid over 20 years, but increases to approximately 215 million won when repaid over 30 years.
Early Repayment Utilization Strategy
- Since interest is high during the first few years, early early repayment is effective for saving on interest.
- You should compare the early repayment fee (usually 0.5–1.51 TP3T within 3 years of the loan) with the interest saved.
- Check the remaining principal on the monthly schedule and calculate the effect of early repayment at a specific installment.
What is DSR (Debt Service Ratio)?
DSR is an indicator representing how many 1 TP3T of annual income the total annual debt principal and interest repayments are. Under regulations effective from 2023, loans may be restricted if the DSR exceeds 401 TP3T. You can estimate your DSR by using the monthly payment results from this calculator.
Frequently Asked Questions
What is equal principal and interest repayment?
This is a method where the total monthly payment is fixed. The proportion of interest is high in the beginning, and the proportion of principal repayment increases over time. It is the standard method used for most mortgages and personal loans, and since the same amount is paid every month, it is convenient for household budget planning.
Is a longer loan term always advantageous?
No. While a longer term reduces monthly payments, the total interest burden increases significantly. For example, when borrowing 300 million won at an annual interest rate of 4.51%, choosing a 30-year repayment period over a 20-year period reduces monthly payments but increases total interest by tens of millions of won. If you have sufficient cash flow, shortening the term is more advantageous in terms of total cost.
Is equal principal repayment more advantageous than equal principal and interest repayment?
In terms of total interest, the equal principal repayment method is more advantageous. Since a larger portion of the principal is repaid early, the remaining principal decreases quickly, resulting in a lower interest burden. However, as the initial payment is high, this method is suitable for those with sufficient income. If you lack sufficient initial cash reserves, the equal principal and interest repayment method is a more stable choice.
Why can the actual loan amount differ from the calculation result?
Actual financial products reflect preferential interest rates, early repayment fees, grace periods (periods during which only interest is paid), handling fees, and interest calculation methods on the execution date. This calculator provides estimates based on pure principal and interest; please be sure to verify the final terms with the financial institution.
How much interest can I save by making an early repayment?
You can estimate the interest savings by checking the remaining principal for a specific installment in the monthly repayment schedule, entering that remaining principal as the new loan amount, and calculating it over the remaining period. However, you must also check the early repayment fee conditions of the actual product (usually 0.5–1.51 TP3T within 3 years of the loan).
What criteria should be used to set the loan term for mortgages and personal loans?
Mortgage loans can be set for a maximum term of 30 to 40 years. It is generally recommended to keep monthly payments within 30 to 40% of your income. Credit loans are typically set for a term of 1 to 7 years; since the total interest burden increases sharply as the term lengthens, especially at higher interest rates, it is advisable to set the term as short as possible.