In a loan, the principal borrowed plus interest must be repaid. So, part of each loan payment is interest and the rest reduces the principal. For example: Payment 1: We know that he has to pay $45.84 each month. If we just examined the first month, we know that there it is the first of 12 payments. We know that an annuity is a series of compound interest predicaments added together, so if we are examining an individual row, we are using compound interest. A = 45.84, i-0.015, n 12, P = ? P(1+0.015) 2 12 45.84 P(1+ 45.84 (1+0.015) 12 P = $38.34 = P . We see that only $38.34 is going towards the principal, the rest, $7.50 is interest. Select one other payment on the repayment schedule. Repeat these calculations for them to show how you get the money going towards principal and to interest