How to Calculate a Loan Repayment Formula

How to Calculate a Loan Repayment Formula
You can determine your monthly loan payments using only a calculator.

Calculate the monthly interest rate on your loan by dividing the annual interest rate by 12. For example, if the annual interest rate equals 9 percent, the monthly interest rate would be 0.75 percent.

Convert the monthly interest rate from a percentage to a decimal by dividing by 100. In this example, divide 0.75 by 100 to get 0.0075.

Multiply the number of years in the term of the loan by 12 to calculate the number of payments you will make over the life of the loan. For example, if you are repaying the loan over five years, you would multiply 5 by 12 to get 60.

Add 1 to the monthly interest rate expressed as a decimal. In this example, add 1 to 0.0075 to get 1.0075.

Use exponents to raise the result from Step 4 to the negative Pth power, where P equals the total number of monthly payments you will make on the loan. In this example, raise 1.0075 to the negative 60th power to get 0.638699699.

Subtract the result from Step 5 from 1. In this example, subtract 0.638699699 from 1 to get 0.361300301.

Multiply the amount you borrowed by the monthly interest rate expressed as a decimal. In this example, if you borrowed $30,000, multiply 30,000 by 0.0075 to get 225.

Divide the result from Step 7 by the result from Step 6 to calculate the monthly payment on your loan. To conclude this example, divide 225 by 0.361300301 and find that your monthly payment would be $622.75.