ELR calculator

Understanding Equal Loan Repayment (ELR) and Its Calculation

Introduction

Equal Loan Repayment (ELR) is a method used to determine fixed monthly loan repayments over a specified period. This type of repayment structure ensures that the borrower pays the same amount each month, comprising both principal and interest components.

The Formula for ELR Calculation

The ELR formula is derived from the annuity formula, where:

ELR = ( 1+r ) n−1 P × r × ( 1+r ) n​

• P is the principal amount (the initial loan amount).
• r is the monthly interest rate (annual interest rate divided by 12 and converted to a decimal).
• n is the total number of payments (loan term in months).

Breaking Down the ELR Formula

1. Calculate the Monthly Interest Rate (r): r = annual interest rate​ / 12 × 100
2. Determine the Number of Payments (n): n = loan term × 12
3. Plug the Values into the ELR Formula: ELR = (1+r)n−1P×r×(1+r)n​

Example Calculation

Let’s consider an example:

• Principal (P): $10,000
• Annual Interest Rate: 5%
• Loan Term: 3 years

Step 1: Calculate Monthly Interest Rate (r): r = 5 / 12× 100 ​= 0.004167

Step 2: Determine Number of Payments (n): n = 3 × 12 = 36

Step 3: Plug Values into ELR Formula: ELR = 1000 × 0.004167 × ( 1 + 0.004167 )³⁶

Result: ELR \approx $299.71

Therefore, in this example, the Equal Loan Repayment (ELR) would be approximately $299.71 per month.

Wrapping it up

Understanding the Equal Loan Repayment (ELR) formula allows borrowers to calculate their monthly repayments accurately. This fixed repayment structure provides financial predictability and helps borrowers plan their budgets effectively over the loan term. Remember, while the formula remains constant, it’s essential to verify any specific terms and conditions with your lending institution.