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Line of Credit Payment Formula:
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The Line of Credit Payment formula calculates the monthly payment for a line of credit based on the amount drawn, interest rate, and principal repayment rate. It helps borrowers understand their payment obligations.
The calculator uses the Line of Credit Payment formula:
Where:
Explanation: The payment consists of both interest (based on the drawn amount and interest rate) and principal repayment (based on the repayment rate).
Details: Accurate payment calculation is crucial for budgeting and financial planning when using a line of credit. It helps borrowers understand their monthly obligations and manage cash flow effectively.
Tips: Enter the amount currently drawn from your line of credit, the monthly interest rate (annual rate divided by 12), and the principal repayment rate. All values must be positive numbers.
Q1: How is this different from a regular loan payment?
A: Line of credit payments typically only cover interest plus a small principal amount, unlike amortizing loans where payments are fixed and include both principal and interest.
Q2: What's a typical principal repayment rate?
A: This varies by lender but is often 1-2% of the outstanding balance per month.
Q3: Does the payment change if I draw more?
A: Yes, since the payment is based on the drawn amount, your payment will increase if you borrow more from your line of credit.
Q4: How do I convert annual rate to monthly?
A: Divide the annual percentage rate by 12 (for months) and convert from percentage to decimal (divide by 100).
Q5: What if I only pay the interest?
A: Some lines of credit allow interest-only payments, in which case the principal repayment rate would be 0.