Calculating the Loan Payment on a Simple-Interest Installment Loan Instaliment loans allow borrowers to repay the loan with periodic payments over time. They are more common than single-payment loans because it is easier for most people to pay a fixed amount penodically (usually monthly) than budget for paying one big amount in the future. Interest on instaliment loans may be computed using the simple interest method or the add-on method. For an instaliment loan using simple interest and equal payments throughout the life of the foan, a portion of each repayment is dedicated to the principal and a portion to the interest. Remember that interest is charged only on the outstanding batance. This means that as each payment is made; more of it is allocated to The following table lists the monthly instaliment payment amounts required to repay $1,000 over vorious time frames and at various fored-interest. rateb. The poyment is the same each month, and the allocation between arincipal and interest is always Monthlu Installment I nan Pavments to Redav a \$1.000. Simble Interest Loan To estimate the required monthly payment amount for an installment loan, divide the amount to be borrowed by 1,000 and multiply the result by the appropriate figure from the table. Suppose that you are repaying a debt-consolidation loan in the amount of $26,000. The rate of interest on the loan is 16%, and you have agreed to pay back the loan in 12 monthly payments. Using the values in the preceding table, complete the following steps to calculate the required monthly payment amount for this loan. Step 1: Divide the amount of the loan by 1,000. Dividing $26,000 (loan amount) by 1,000 gives you a value of Step 2: Use the rate of interest and the number of monthly payments to identify the appropriate figure to use from the table. In this case, the rate of interest is 16%, and the loan requires 12 monthly payments. Therefore, the relevant amount from the table is 5 Step 3: Multiply your answer from Step 1 by the appropriate value from the table cell (from Step 2). This gives you a required monthily payment amount of 5 Calculete yout total poyments and finance charge by completing the following toble. (Note: Enter all figures as positive numbers to two decimal places.) Total Poyments 5 Lonn Amount $26,000.00 Finance Charget 1