Early Settlement Calculator

Formula

The formula to calculate the Early Settlement Amount (ES) is:

$ES = P - (P \cdot \left( \frac{n - t}{n} \right))$

Where:

$ES$ 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

Definitions

Early Settlement: 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.
Principal Loan Amount (P): The initial amount of money borrowed.
Total Number of Monthly Payments (n): The total number of payments scheduled for the loan.
Number of Payments Already Made (t): The number of payments that have already been made towards the loan.

Example

Let's say the principal loan amount (P) is $10,000, the total number of monthly payments (n) is 24, and the number of payments already made (t) is 6. Using the formula:

$ES = 10000 - (10000 \cdot \left( \frac{24 - 6}{24} \right))$

We get:

$ES = 10000 - (10000 \cdot 0.75) = 10000 - 7500 = 2500$

So, the early settlement amount is $2,500.