Some history ... loans have been around for a very long time. The people who understand how they work tend to be financially ahead of every one else. There is a lot of math behind most loans, and this math controls how much interest you'll pay. Before computers; this math had to be done by hand. A lot of mistakes were made. Some were probably intentional.

When the printing press was invented, some books were printed that would list the monthly payment for a $1,000 loan, for different time frames, and for different interest rates. If you borrowed $5,000 the lender would multiply the payment of a $1,000 loan by 5 to get your monthly payment. Like getting 5 separate $1,000 loans and combining the 5 payments into 1. Mathmatically this works but is still subject to human error.

Today computers and hand held calculators can do all the math quicker and more accurately. The banks use computers that will calculate interest for every day. A calculator can also do this, but they are usually used for a very close guess by calculating interest for each month. Many of todays home computers also have this function built into the spreadsheet program.

So why should you have a calculator? EDUCATION, economical, and portable.

EDUCATION: Using a calculator, or spreadsheet, to find monthly payments; can give you great insight into how loans work. Playing with different interest rates and watching the effect on the payment, will teach you why your credit rating is so important. Playing with different time frames will show you the impact on your monthly payment ... a payment that you'll have to make if you get that loan. Playing with differnet monthly payments can show you how much time can be shaved off a loan. All of this could be done by your banker; but they won't want to take the time to show you. They want to sign you up, and move on to the next customer.

ECONOMICAL: Plain and simple, calculators cost less than computers. Even with a computer, you'll probably write some infomation on paper. So we won't count paper and pencil costs.

PORTABLE: Yes, portable. When you go to the bank, or a car sales lot, or a furnature store, etc., you can easily carry a calculator in a pocket or purse. It would be very awkward, not to mention it would take longer, to pull out a laptop. Don't just take the bankers word about the payments. Their payment will usually be a little larger than your calculator shows. They will be calculating interest daily, and for any partial months. Your calculator will calculate only on whole months. But their payment shouldn't be much larger. If the difference seems excessive, ask them to explain it. If they can't, it may be time to leave and get the loan elsewhere.

So how do they work? All loans have 5 basic numbers that define the loan:
     Present Value (the amount borrowed)
     Future Value (Usually 0, paid off)
     Interest Rate
     Number of payments (how long is the loan)
     Monthly Payment
Give any 4 of these numbers and the calculator can tell you the 5th number.

For Example: A $100,000 loan to be fully paid off in 360 months (12 x 30 years) with a 7% interest rate, will have a monthly payment of $665.30 (there could be some rounding to the nearest penny)

So how much would a person still owe after making payments for 15 years? A $100,000 loan to be fully paid off in 360 months (12 x 30 years) with a 7% interest rate and monthly payments of $665.30; after 180 months (12 x 15 years) would still have a future value of $74,018.87

So half way through the loan you still would owe almost 3/4 of what you borrowed!
And if we add just $10 to the monthly payment ...

So $10 a month for 180 months would cost $1,800 and would save $3,169.63 on the loan.

This is why you need a financial calculator. So you can play with the numbers and learn how loans work.