How to Calculate the Repayment of a Loan

Car loans usually have a fixed monthly payment.

Most loans require that you repay the money, with interest, over a set period of time. Each monthly payment includes a portion for interest and a portion to repay the amount borrowed, otherwise known as the principal. The payment is calculated so that the total amount remains the same over the life of the loan, even though the portions that go toward principal and interest vary. In order to calculate the repayment amount, you need to know the periodic interest rate, term of the loan and how much you've borrowed.


Step 1

Check the terms of the loan to determine the periodic interest rate expressed as a decimal, the term of the loan and the amount you are borrowing. If you are unsure, contact your lender.

Video of the Day

Step 2

Add 1 to the periodic rate. For example, if your periodic rate was 0.008, you would add 1 to 0.008 to get 1.008.


Step 3

Calculate the result of Step 2 to the negative T power, where T is the number of times you will make a payment over the term of the loan. For example, if you were going to repay the loan in 36 monthly payments, T would be 36. Continuing the example, you would raise 1.008 to the -36th power to get 0.750621231.


Step 4

Subtract the answer from Step 3 from 1. In this example, you would subtract 0.750621231 from 1 to get 0.249378769.


Step 5

Divide the periodic rate by the result from Step 4. In our example, you would divide 0.008 by 0.249378769 to get 0.032079716.


Step 6

Multiply the result from Step 5 by the amount borrowed to calculate the amount of the loan payment. Finishing the example, if you borrowed $29,000, you would multiply $29,000 by 0.032079716 to find the monthly payment to be $930.31.


If your loan specifies the annual rate but not the periodic rate, you can calculate the periodic rate by dividing the annual interest rate by the number of payments per year. For example, if you had a loan with an annual interest rate of 9.6 percent and monthly repayments, you would divide 0.096 by 12 to find the periodic rate would be 0.008.



Report an Issue

screenshot of the current page

Screenshot loading...