How to Calculate Principal Repayment

Each payment you make on a loan goes partly to interest and partly to principal. Calculating how much of your payment goes to principal requires you to know how many payments you make per year, the interest rate you're charged and how much you owe. Knowing how to calculate the amount of each payment that goes toward principal can help you feel like you're making a dent in your debts. The formula for figuring principal repayment applies the same way to various loans, including credit card debt, mortgages and student loans.

Step 1

Calculate the periodic interest rate by dividing the annual interest rate by the number of periods per year. For example, say you make monthly payments on your loan and pay 8.52 percent per year. Divide 8.52 percent by 12 to find the monthly rate is 0.71 percent.

Tip

If you don't know how much you owe, check your most recent account statement or contact your lender.

Step 2

Multiply the periodic interest rate by the amount you owe to calculate the interest due for the payment period. Continuing the example, if you owe $15,000 on the loan, multiply $15,000 by 0.71 percent to find you owe $106.50 in interest for the month.

Step 3

Subtract the interest owed for the period from your payment on the loan to determine the amount of principal repayment for the period. Finishing the example, if you make a monthly payment of $200, subtract $106.50 of interest to find that you've repaid $93.50 of principal.

Tip

Principal repayment often varies from payment to payment as you pay down the amount you owe. As your debt decreases, so does the interest that accrues each period. Therefore, assuming your payment stays the same, more and more of each payment will go toward paying down principal.

Warning

If your payment is less than the accrued interest, the amount of principal due will go up. For example, if $106.50 in interest accrues and your payment is only $100, your principal due will increase by $6.50.

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