Calculating the Loan Payment on a Simple-Interest Installment Loan Installiment 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 periodically (usually monthly) than budget for paying one big amount in the future. Interest on instaliment foans 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 loan, a portion of each repayment is dedicated to the prindpal and a portion to the interest. Remember that interest is charged only on the outstanding balance. This means that as each payment is made, more of it is allocated to The following table lists the monthly installment payment amounts required to repay $1 koo over warious time frames and at various fixed-interest rates. The payment is the same each month, and the allocation between principal and interest is always To estimate the required monthly payment amount for an instaliment loan; divide the amount to be borrowed by 1,000 and multiply the result by the oppropriate figure from the table. 5uppose that you are repaylig an automobile loan in the amount of $23,000. The rate of interest on the loan is 14%, and you have agreed to pay back the loan in 72 monthly payments. Monthly Installment Loan Payments to Repay a $1,000, Simple Interest Loan To estimate the required monthily payment amount for an instaliment 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 an automobile foan in the amount of $23,000. The rate of interest on the loan is 14%, and you thave agreed to pay back the loan in 72 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 523,000 (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 1490 , and the loan requires 72 monthly payments. Therefore, the relevant amount from the table is 5 . Step 3: Multipiy your answer from Step 1 by the appropriate value from the table cell (from Step 2), This gives you a required monthly payment. amount of 3 . Calculate your total paymenes and finarce charge by completing the following table. (Note: Enter all figures as positive numbers to two decimal piaces.) Total Payments 5 Loan Amount $23,000,00 Finance Charge $
