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How could you compute for the monthly loan payments manually without using those loan calculators? |
How could you compute for the monthly loan payments manually without using those loan calculators? There are interest formulas for that, but you need to know how many months you'll be paying, what the interest rate will be, how often they charge you interest (monthly, daily, etc) and how much money you are borrowing. Since its a loan, you'll be dealing with present value. PV = R * [1-(1+i)^-n]/i Plug in your numbers and solve for 'R' (payment frequency). 'PV' = present value 'R' = payment frequency 'i' = interest 'n' = number of payments You need to bring all your payments to a common time reference. Since different amounts are paid at different times, you have different worth due to depreciation. I like to convert everything to the present value. Loan amount, P is taken out at time = 0. So present value of loan = P. Let's suppose a payment of A is made at the end of every year. First payment is made after 1 year. Initial value of that payment = A / (1+r). This is the value which is worth A in 1 year from now. Similarly the intial value of the second payment is A / (1+r)^2. etc etc. Initial value of all paymentts for n years = A * [1/(1+r) + 1/(1+r)^2 + 1/(1+r)^3 + ... 1/(1+r)^n ] This is equal to P. So once you know r and n, you can find A from that. EG. Suppose you took a loan for $10,000 and you wish to pay that off after 4 years, at an interest of 10%. P = 10000 1+r = 1.1 The summation above = 3.1699 A = 10000/3.1699 = $3154.71 The formula for computing monthly payments on an installment loan is: p = iP/(1 - 1/(1 + i)^n) where p = payment P = amount financed i = monthly interest (annual interest / 12) n = number of months Any scientific calculator can handle the calculations. If you really want to do it manually, I suggest you use log tables to minimize calculation time. |
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