Enter the principal loan amount, total number of monthly payments, and the number of payments already made into the calculator to determine the early settlement amount.
Early Settlement Formula
The following formula is used to calculate the early settlement amount.
ES = P - (P * ((n - t) / n))
Variables:
- ES is the early settlement amount ($)
- P is the principal loan amount ($)
- n is the total number of monthly payments
- t is the number of payments already made
To calculate the early settlement amount, subtract from the principal loan amount the result of multiplying the principal loan amount by the quotient of the total number of payments minus the number of payments already made divided by the total number of payments.
What is an Early Settlement?
Early settlement refers to the process where a borrower pays off a loan or debt before the scheduled due date. This can be done in full or partially, depending on the terms of the loan agreement. Early settlement can reduce the total amount of interest paid over the life of the loan, but it may also incur penalties or fees, as lenders lose out on expected interest income.
How to Calculate Early Settlement?
The following steps outline how to calculate the Early Settlement amount.
- First, determine the principal loan amount ($).
- Next, determine the total number of monthly payments (n).
- Next, determine the number of payments already made (t).
- Next, gather the formula from above = ES = P – (P * ((n – t) / n)).
- Finally, calculate the Early Settlement amount.
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem :
Use the following variables as an example problem to test your knowledge.
principal loan amount ($) = 5000
total number of monthly payments = 36
number of payments already made = 12
