How to Calculate Monthly Installment Payments

The first step to creating an amortization table for any loan is to calculate the monthly installment payment. You will need the loan value, the annual percentage rate (APR) for the loan and the term of the loan. Loans with a term of five years or less are usually expressed in months, while longer-term loans are usually expressed in years. The equation for calculating monthly payment requires that the loan term be expressed in months rather than years.

Instructions

1. Calculate the monthly interest rate by dividing the APR by 12. If the APR for the loan is 4 percent, the monthly interest rate would be:
   0.04/12 = 0.00333 or 0.333 percent.

2. Calculate the loan term in months if necessary. A five-year loan is usually expressed as 60 months. If the loan term is expressed in years, such as a 30-year mortgage, simply multiply by 12.

3. Use the loan value (L), the monthly interest rate (c) and the term expressed in months (n) in the following equation to calculate the monthly installment payment (P).
   P = L[c(1 + c)^n]/[(1 + c)^n - 1]
   Using a 60-month loan for $20,000 at 6 percent APR (0.005 monthly):
   c(1+c)^n = 0.005(1+0.005)^60 = 0.005(1.005)^60 = 0.0067
   (1+c)^n - 1 = (1+0.005)^60 - 1 = 1.005^60 - 1 = 0.349
   L[c(1 + c)^n]/[(1 + c)^n - 1] = 20000[0.0067/0.349] = $383.95