By taking your multiple business debts and leaving you with a single loan to repay monthly, debt consolidation prove to be the best way of dealing with the heavy financial burden. You’ve probably read all about the lowered monthly repayments and how you can make savings from consolidation. But, how do you do the math to measure the eligibility of consolidation? Which elements should you factor into your calculations?
The outstanding debt
This is the actual amount owed to creditors. You may find that your business has many creditors but unless you list these creditors down and the amount you owe each of them, you will be in the dark. That is also a business process that is often referred to as a ‘bad financial decision’. You need to know the principal amount owed plus the interest and the premium and any penalties.
How do you calculate this total amount?
This must be your first step in consolidation. When you took up the loan from the lender, you must have agreed to repay the loan plus interest regularly over a period of time, right? Since the regular and serial payments guarantee to repay the loan in full over the agreed term, the Present Value of the payments should be equal to the value of the loan. For example, if your business takes a $100,000 loan, at an interest rate of 6% for 4 years, then agrees to repay in 28,859.15 monthly, the present value (PV) of the loan installments is equal to the total amount of the loan.
PV= periodic loan payment (pmt) x )1-1/(1+ i)n) / i
PV= 28,859.15 X (1 – 1/ (1+ 6%)4) / 6% = 100,000
Outstanding loan balance = PV of remaining loan installments. This is information that makes it possible for you to calculate the outstanding loan amount at a particular point in time.
I.e. Loan balance = Loan amount + Interest – Installment (100000+100000x 6% – 28,859.15) = 77140.85.
If you are a business in Las Vegas and planning to get a debt consolidation loan, then note that these calculations are applicable to you. If you feel stuck, which you shouldn’t, contact a debt consolidation professional or a banker. Las Vegas has a big number of A-Listed professional bankers, debt consolidation agents, and business finance manager who will be at hand to take you through this.
Do you know why online consolidating companies put emphasis on the fact that you have to read the fine print? It is because of expenses like prepayment penalties. This is the amount you have to pay if you pay off the loan before the maturity date. Other companies don’t have this fee, but reading the fine print and knowing exactly how much you have to incur will bring perspective. If there, add it to the current total outstanding loan.
Once you have the above values, make a final tally and include prepayment charges and any other transaction fees.
Calculate and compare APRs
Two dissimilar loans may look similar because of factors like loan terms, interest rates, interest calculation, and amortization techniques. However, before closing a deal, check the APR and the interest rates because these always vary. At the same time, the real APR may be higher than the APR given. So, use the general APR calculator and get values for the loans. Comparison leads you to the best deals.
Prepare the amortization schedule
This gives you exact amortization values for your debt to guide you into your new monthly repayment amounts.
That is it – a simplification of the debt consolidation calculation. Only take up a loan if you will save some money and if the deal is the best for your business. Once you have the finer details of the number, apply for the loan, pay the creditors, and track your repayments.