Calculating Loan Repayments

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Calculating Loan Repayments

Loan Repayment PV = R ∙( 1+ 1+𝑖 −𝑛 𝑖 ) PV = Principal Value i = interest rate n = number of payments When you pay back a loan, you are charged with the same monthly payment for the term of the loan. However, with each payment you make on the loan the interest based on the loan is from a smaller and smaller principal remaining on it.

Ex. You take out a loan for $16,500 at 2 Ex. You take out a loan for $16,500 at 2.9% annual interest for 4 years. What are the monthly payments? What is the total payback on the loan? What is the interest paid on the loan? PV = $16500 i = .029 12 n = 4 ∙12 R = monthly payment 16500 = R ∙( 1+ 1 + .029 12 −48 .029 12 ) $364.48 = R monthly payment 364.48 * 48 = 17495.04 $17,495.04 = total payback on the loan 17495.04 – 16500 = 995 $995.04 = total interest paid on the loan