How to Calculate the Payment For a Basic Loan

Using the Loan Payment Calculator

You can also watch this video: How to Calculate the Payment For a Basic Loan

Sarah finds the perfect vehicle at a local dealership. She estimates she will need to finance $25,000. The dealer is advertising car loans with the following terms:

• Annual interest rate: 4.5%
• Loan term: 60 months (5 years)

Sarah wants to calculate the monthly payment required before she negotiates further with the dealer.

Calculating the Payment

Open the Loan Payment Function Calculator.

Value	Keystrokes	Display	Description
25000	amt	25,000.00	Stores the amt value.
60	months	60.00	Stores the number of months.
4.5	rate	4.50	Stores the annual interest rate.
	pmt	466.08	Calculates the payment.

The History Detail

Loan Payment 
          11.86 : Total Interest Percentage.
      25,000.00 : The loan amount.
          60.00 : The number of months of the loan.
           4.50 : The annual interest rate.
         466.08 : The payment for a basic loan.
Result:	 466.08

Calculating the Loan Amount for a Different Payment

Sarah believes she can afford a $525 monthly payment. How much can she borrow?

Value	Keystrokes	Display	Description
525	pmt	525.00	Stores the new payment.
	amt	28,160.67	Calculates the a new loan amount.

The History Detail

Loan Payment 
Solving for amt, loan amount, with initial value (guess) of 25,000.00
          11.86 : Total Interest Percentage.
      28,160.67 : The loan amount.
          60.00 : The number of months of the loan.
           4.50 : The annual interest rate.
         525.00 : The payment for a basic loan.
Result:	 28,160.67

Explanation of Results

This means that to fully repay the $25,000 car loan over a period of 60 months (5 years) at an annual interest rate of 4.5%, Sarah would need to make a payment of $466.08 each month. If Sarah wants to increase her payment to $525, she could borrow $28,160.67 and get a few more options on her new car.

By using this basic loan calculator, Sarah can quickly and easily determine the monthly payment for her dream car loan, helping her to budget effectively and make an informed decision about financing her vehicle. She can now confidently proceed with the purchase, knowing that she can comfortably afford the monthly payments. It's important to note that this example does not account for additional fees, taxes, or insurance that may be associated with Sarah's car loan.

Explanation of a Basic Loan

Loan Payment Function Calculator uses the same functions used by standard professional Time Value of Money (TVM) financial calculators like the TI BA, HP 10bii and CALC 1 TVM calculator. It makes the following assumptions to simplify the calculation of the loan payment:

• Periods per year is set to 12.
• Compounding periods per year is set to 12.
• The Begin/End Mode is set to End.
• The future value, FV is set to 0.
• The payment and the loan amount (PV in the TVM calculators) ar both displayed as positive values.
• The Total Interest Percentage is calculated for the History Detail.

By having both the basic loan payment calculator and a professional TVM calculator, CALC 1 offers consumers and professionals the solutions to a wide range of TVM problems.