How to Figure Out Loan Payments

Most lenders and borrowers determine the affordability of a loan by the monthly payment rather than the amount borrowed, because the monthly payment can be drastically affected by the loan term and the interest rate. To find the monthly payment for a loan payment, you need to know the loan amount, interest rate, payment period and term. The interest rate will be affected by the risk of your loan, including whether it is secured or unsecured, and the market interest rates.

Things You'll Need

• Calculator

Instructions

1. Divide annual percentage rate by the number of payments per year to find the periodic interest rate. For example, if you take out a loan with a 9.6 percent interest rate that has monthly payments, you would divide 0.096 by 12 to find the periodic rate equals 0.008.

2. Multiply the periodic interest rate by the present value of the loan, also known as the amount borrowed. For example, if you borrowed $6,000, you would multiply $6,000 by 0.008 to get $48.

3. Add 1 to the periodic rate. In this example, you would add 1 to 0.008 to get 1.008.

4. Multiply the number of loan payments by negative one. For example, if you had 48 monthly payments, you would multiply 48 by negative 1 to get negative 48.

5. Raise the result from step 3 to the result from step 4. Furthering this example, you would raise 1.008 to the negative 48th power to get 0.682172894.

6. Subtract the step 5 result from 1. Moving along, you would subtract 0.682172894 from 1 to get 0.317827106.

7. Divide the step 2 result by the step 6 result to find the monthly payment. Completing the example, you would divide $48 by 0.317827106 to find the monthly payment to be $151.03.

References

• Math Forum: Calculating Monthly Payment on a Loan
• Bankrate: Loan Calculator

Resources

• Read this Article in Spanish