How to Calculate Secured Loan Rates
A secured loan is a loan so large that it requires collateral. One example of a secured loan that most people are familiar with is a mortgage loan. With a mortgage loan, the house you purchase is the collateral, and the bank has the right to seize it if you default on your loan payments. Many mortgage sites offer free online calculators that will help you determine the amount of your monthly payments. All you have to do is plug in certain variables. However, if you already know your monthly loan payments and have all the variables except interest, how do you calculate the rate?
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Instructions
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1
Obtain your loan amount, monthly payments and number of months. You need these three numbers to calculate the loan rate.
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2
Assign a value to each of the variables. For this equation, "C" represents the loan amount, "P" represents the monthly payments, "N" represents the number of months and "R" represents the interest rate.
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Start with the formula R(1+R)^N divided by [(1+R)^N]-1. Then, subtract P/C, and set the whole equation equal to 0. The "^" is a mathematical symbol indicating that what is in parenthesis is raised to the power of "N."
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4
Replace the variables with the numbers obtained in step one and solve for "R."
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Now, let's practice. For this example, the loan amount (C) will be $5,000, monthly payments (P) will be $198.79 and number of months (N) will be 36. Apply these numbers to the equation and find the interest rate. You should come up with an answer of 25%.
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