How to Calculate Loan Repayments

Calculating loan repayments may seem complicated, but with the right information, it's really quite simple. It's also crucial information when considering a loan, so that you will know exactly what you, and can't, afford. You can either use a loan payment calculator, a number of which are easily available online, or you can do the math yourself. To calculate the payments yourself, simply follow the instructions below.

The following example assumes you're borrowing $5,000 for a term of 5 years, at a 6 percent interest rate.

First, determine your total amount of interest by multiplying the loan amount by the interest rate, and then multiply that by the number of years for the loan. For this example, multiply $5000 x .06 x 5. Your total interest is $1500.

Next, add the total amount of interest to the principal to calculate the total repayment amount. This example is $5000 plus your interest of $1500, for a total of $6500. This is the total amount you'll pay.

Now determine the number of monthly payments, which is simply 12 (months) times 5 (years), making it 60 payments for our example. Finally, to figure the amount of your monthly payment, divide your total amount ($6500) by the number of payments (60). You can now see that your monthly payment for this example is $108.33 per month.

Now that you see how easy it is to calculate loan repayments, you can determine the impact that borrowing a different amount, over a different time, or at a different interest rate will have on your monthly payments. If you are handy with excel, this is a great tool to prevent you from doing the same calculations over and over again.

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