A lot of the time, we are given a concentrate variables and we want to guess the payments on a loan. For example, you are trying to finance a ,000 car at a 12% interest rate for 5 years. All you want to find out is how much your monthly payment is going to be and whether or not you can afford that payment. Just a heads up - you will need a calculator to shape out these payments. Since you are probably on a computer right now, you can use the calculator on your computer, or you can use excel.
Lets use the example above and try to guess out your monthly payment. First, let's set some terms. Pv (Present Value) of the loan is going to be ,000. Your interest rate per year is going to be .12. However, since we are trying to guess out Monthly payments, we are going to want to turn this 12% per year into a monthly rate. This is as straightforward as dividing .12 by 12 which gives you .01 or 1%. Finally, we are going to want to define our number of payments, n. We know that it will be 5 years, but we need to convert that into months. straightforward as multiplying 5 by 12 which gives you 60 months.
How to calculate Payments on a Loan
Ok, so here are our variables:
Total number of payments: n=60
Interest: i=0.01
Present Value: pv=10000
The easiest way to guess payments is to use a spreadsheet on your computer like excel. Open up the program, plump a cell and type in the following exactly (without the quotes): "=Pmt(0.01,60,10000)". Hit enter. This will automatically guess out your monthly payment of "-2.44". This is what your monthly payment on your car loan should be, given those exact variables. I am sure that the loan you are trying to guess payments on has different variables, so here is the equation using variables instead of values: "=Pmt(i,n,pv)". To guess payments on your loan, just replace the i with interest, n with number of payments and pv with the total loan amount.
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