How to Calculate APR Payments
If you are taking out a loan for a car or mortgage, it helps to know exactly what your payments are going to be each month. Knowing how much your APR payments are will make it easier for you to calculate what your total payment is. Banks will tell you this but if you forget, and you have your total loan amount, you can calculate how much you have to pay.
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Instructions
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Calculating APR Payments
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Write the equation: M = P [ i(1 + i)^n ] / [ (1 + i)^n - 1] onto a piece of paper. The M stands for monthly payment, the P stands for principal, the i stands for interest divided by 12 months, and the n stands for the number of total payments you'll make. For the sake of this article, you'll be taking out a $100,000 loan at 5.00% for 120 months.
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Find "i." Do the equation: five percent divided by 12 months (or .05/12) equals 0.004167. This is equal to the amount of interest on your principal that you pay each month. You already know that "n" is equal to 120 payments. However, to find it, multiply the number of years of the loan (10) by 12 (number of months in year) which equals 120 payments.
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3
Solve for (1+i)^n. Add the 1 to the 0.004167 you found in the previous step. Then, using your calculator's x^y feature, plug in (1.004167), hit that button, and type 120. You'll wind up with an answer of 1.647.
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The formula now reads:
M = P(0.004167x1.647) / (0.647). This simplifies to M = 100,000 x .0106. The answer to this is $1060 which is how much you will pay each month to pay off your mortgage in 120 months.
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Use an online APR calculator to verify that your result is correct. These calculators (see references) will provide the monthly payment, but also divide up how much of that payment goes to the principal and how much goes to interest.
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