Loan Constant
Categories: Credit
When you sign up for a loan and don’t want to %*#& it up, you do some math to make sure that you can afford your monthly payments, which include some amount of principal and interest. Your monthly payments are a type of “debt service,” which is just the money you need to cover payments over a certain time period. We promise we’re not off-topic here...bear with us.
A loan constant is the annual debt service divided by the total loan amount. Which means that you figure out how much money you need to pay your loan not monthly, but annually, and divide that by the amount you borrowed.
A loan constant will show you how much you’re paying every year compared to how much you borrowed in the first place. Obviously, this only when you know your monthly/annual payments, which you don’t if your loan is variable, so it’s limited to fixed-rate loans (although if you wanted to guesstimate the loan constant on a variable loan, we won’t call the loan police on you).