Note:
♦ If your yearly interest rate is 8%, type in 8 not 0.08
♦ To return to this page, click on the link provided above the amortization table.
♦ Any information you enter will not be saved or recalled in any way by this website.
Interested to know how the calculation was done?
Let us call
♦ the principal loan P
♦ the annual interest rate R, and
♦ the total number of years Y.
Since you are calculating the monthly payment, that means
that if your annual interest rate is 8%, you have to divide it by 12 months
to get the monthly interest rate. So if someone tries to get you to
sign a loan that requires you pay a monthly rate of 8%, it means that you will be paying
a 96% annual interest rate on your loan; so be careful.
As the information you provide is in Year, we will have to break it down into Months. Hence
♦ Monthly Interest Rate = Annual Interest Rate ÷ 12
♦ Number of Payments = Number of Years × 12
To calculate your monthly payment, you will use the following
formula.
Keep in mind that
P = principal loan
r = annual interest rate ÷ 12
n = years ×12
Assuming that you get a $10,000 loan, at an annual interest rate of 8% for the length of 5 years.
P = 10,000
r = 0.08 ÷ 12
= 0.006667
n = 5 ×12
= 60
Take out your calculator folks.
| Step 1 | P × r | = ($10,000) × (0.006667)......................(1) |
| = $66.67 | ||
| Step 2 | (1 + r)-n | = (1.006667)-60 |
| = 0.67121 | ||
| Step 3 | 1 − (1+r)-n | = 1 − 0.67121..............................(2) |
| = 0.32879 | ||
| Step 4 | (1) ÷ (2) | = $66.67 ÷ 0.32879 |
| = $202.76 |
Why is the interest payment decreasing in the amortized table?
Loans are usually paid together with the interest. Hence for the first month, $66.67 of the $202.76 will be the interest you have to pay back on the loan.
| Month 1 | $10,000 × r | = $ 66.67 |
| Month 2 | $9,863.91 × r | = $ 65.76 |
How is the loan amortized?
Keep in mind that the monthly amount of $202.76 will be subtracted from the remaining loan multiplied by the interest. For example the principal at the beginning of the month is $10,000 plus an interest payment of $66.67.
| $10,000 × (1 + r) | = $10,066.67 ................................(3) |
| $10,066.67 − $202.76 | = $9,863.91 |
| $9,863.91 × (1 + r) | = $9,929.66 ...................................(4) |
| $9,929.66 − $202.76 | = $9,726.90 |
(3) represents the first month, and (4) the second month. The loan calculator will repeat this calculation until the 60th month when the loan is paid in full.
If you want to know what you pay in total at the end of the period, multiply the monthly payment with the number of months you will be paying minus one month. Then add the amount of the final month to your total. This is because you only need to pay the amount remaining, which should be anything less than the monthly payment.
$202.76 × 59 + final payment ......... (5)
Hence the cost of this loan is,
(5) − $10,000
This link will open a new window to another website where you will find comparative tables for different banks in Malaysia. Tables range from savings accounts to hire purchases to home loans as well as information on base lending rates. Take note that some banks also use flat rates, so be sure to check before you put down your signature on paper.
Read more articles.