1) It shows 5 solutions for loan inputs simultaneously.
2) It tells you how to fix your numbers when the numbers you've entered don't describe a valid loan (explained below).
As a person who understands Time Value of Money you know that there are 5 parameters that describe a loan (or other TVM problem):
PV Present Value
RATE Interest Rate
NPER Number of Periods (usually months)
PMT Periodic Payment
FV Future Value
You understand that if you know any 4 of these parameters, you can calculate the 5th parameter.
With this calculator, you can input any 4 parameters and instantly see the corresponding, calculated 5th parameter. If you input 5 parameters,then for every subset of 4 input parameters the corresponding 5th parameter will also be displayed. This can be confusing at first. Even a professional dealmaker needs to get used to all the information being displayed at once. But there's power to this design.
Here are the benefits:
1) Unlike some financial calculators that only display 1 value at a time, you don't have to remember what your input values are as you step through various loan scenarios because all inputs are always displayed. There are 10 display fields: 5 for input values and 5 for calculated values.
2) The 5 calculated values represent the 5 different directions you can go when structuring a loan. For example, you may decide to use the calculated RATE to structure a valid loan. Or, you may instead use the calculated FV to construct a valid loan. This design makes it easier for you to "play" with the numbers to get to your preferred solution more quickly.
3) Another powerful feature is that the Info Message warns you when your inputs describe an impossible loan or an improbable loan. For example, you understand that a negative number represents money going out and a positive number represents money coming in. The common structure of a loan (from the borrower's point of view) is to get a chunk of money up front (a positive number) and pay it back with interest in a series of periodic payments (a negative number). A negative Future Value would represent a balloon payment at the end of the the term, NPER. So, it does not make sense to enter a positive PV, a positive PMT and a positive FV. That would describe a scenario where you get money up front, get more money in monthly payments and get yet more money in a lump sum at the end of the term. A valid term, NPER cannot be calculated for this impossible scenario.
The Info Message tells you what range of values would correct the problem and allow you to calculate a valid NPER to describe a valid loan. So, if you enter:
PV = $1,000
RATE = 6%
NPER = blank (same as 0)
PMT = $25
FV = $500
the Info Message will tell you that to calculate a valid NPER:
-$5,000.00 < PV < -$500.00 (i.e. PV must be greater than negative $5,000 but less than negative $500.00 )
PMT must be < -$5.00
FV must be < -$1,000.00.
There are also cases where your inputs may describe a valid loan, but not the loan you intended. For example, If you enter:
PV = $1,000
RATE = 12%
NPER = blank or 0
PMT = -$20
FV = $500 (intended balloon payment should be -$500)
you have entered a loan where payments are made beyond the loan payoff creating a $500 payment due FROM THE LENDER TO THE BORROWER at the end of the term. The Info Message reports this, highlighted in yellow, as an Overpaid Loan to alert you to the probable mistake.
If you understand all of this, get the Smart Loan Calculator to turbocharge your dealmaking! It's a powerful tool in the right hands!
Note: Tablet images use Big Buttons keyboard.