Calculating an installment loan payment

 The interest rate on an installment loan may be either fixed or variable. If an installment loan has afixed interest rate, that rate will not change over the life of the loan. The payments on a fixed-interest loan usually remain the same throughout the term of the loan.

By contrast, if an installment loan has a variable interest rate, the interest fluctuates over time. With avariable-rate loan(also called anadjustable-rate loan), the monthly payments will go up or down, allowing the loan to be paid off by the same date as originally established in the loan contract.

The following table lists the monthly installment payment amounts required to repay $1,000 over various time frames and at various fixed interest rates:

Monthly Installment Payments for a Loan (Principal and Interest Required to Repay $1,000)

Number of Monthly Payments

APR122436486072845$85.61$43.87$29.97$23.03$18.87$16.10$14.13686.0744.3230.4223.4919.3316.5714.61786.5344.7730.8823.9519.8017.0515.09886.9945.2331.3424.4120.2817.5315.59987.4545.6831.8024.8820.7618.0316.091087.9246.1432.2725.3621.2518.5316.601188.3846.6132.7425.8521.7419.0317.121288.8547.0733.2126.3322.2419.5517.651389.3247.5433.6926.8322.7520.0718.191489.7948.0134.1827.3323.2720.6118.741590.2648.4934.6727.8323.7921.1419.271690.7348.9635.1628.3424.3221.6919.861791.2049.4435.6528.8524.8522.2520.441891.6849.9236.1529.3725.3922.8121.021992.1650.4136.6629.9025.9423.3821.612092.6350.9037.1630.4326.4923.9522.21

From Garman/Forgue,Aplia Instant Access for Garman/Forgue's Personal Finance, 11E. 2012 Cengage Learning.

To estimate the required monthly payment amount for a fixed-rate loan, divide the borrowed amount by 1,000 and multiply the result by the appropriate figure from the table.

Suppose that you are repaying an automobile loan in the amount of $23,000. The APR (annual percentage rate) on the loan is 14%, and you have 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.

Questions:

Step 1:Divide the amount of the loan by 1,000. Dividing_____ $(loan amount) by 1,000 gives you a value of_____.

Step 2:Use the APR and the number of monthly payments to identify the appropriate figure to use from the table. In this case, the APR is 14%, and the loan requires 72 monthly payments. Therefore, the relevant amount from the table is _____$.

Step 3:Multiply 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 ________$.

Answer rating: 100% (QA)

Step 1 Divide the amount of the loan by 1000 Dividing 23000 by 1000 gives you a value of 23 Ste... View the full answer