Question: 8. Calculating an installment loan payment using simple interest Calculating the Loan Payment on a Simple-Interest Installment Loan Installment loans allow borrowers to repay the
8. Calculating an installment loan payment using simple interest
Calculating the Loan Payment on a Simple-Interest Installment Loan
Installment loans allow borrowers to repay the loan with periodic payments over time. They are more common than singlepayment 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 installment loans may be computed using the simple interest method or the add-on method.
For an installment loan using simple interest and equal payments throughout the life of the loan, 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 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 $1,000 over various time frames and at various fixed-interest rates. The payment is the same each month, and the allocation between principal and interest is always .
Monthly Installment Loan Payments to Repay a $1,000, Simple Interest Loan
| Number of Monthly Payments | |||||||
|---|---|---|---|---|---|---|---|
| Rate of Interest | 12 | 24 | 36 | 48 | 60 | 72 | 84 |
| 5 | $85.61 | $43.87 | $29.97 | $23.03 | $18.87 | $16.10 | $14.13 |
| 6 | $86.07 | $44.32 | $30.42 | $23.49 | $19.33 | $16.57 | $14.61 |
| 7 | $86.53 | $44.77 | $30.88 | $23.95 | $19.80 | $17.05 | $15.09 |
| 8 | $86.99 | $45.23 | $31.34 | $24.41 | $20.28 | $17.53 | $15.59 |
| 9 | $87.45 | $45.68 | $31.80 | $24.88 | $20.76 | $18.03 | $16.09 |
| 10 | $87.92 | $46.14 | $32.27 | $25.36 | $21.25 | $18.53 | $16.60 |
| 11 | $88.38 | $46.61 | $32.74 | $25.85 | $21.74 | $19.03 | $17.12 |
| 12 | $88.85 | $47.07 | $33.21 | $26.33 | $22.24 | $19.55 | $17.65 |
| 13 | $89.32 | $47.54 | $33.69 | $26.83 | $22.75 | $20.07 | $18.19 |
| 14 | $89.79 | $48.01 | $34.18 | $27.33 | $23.27 | $20.61 | $18.74 |
| 15 | $90.26 | $48.49 | $34.67 | $27.83 | $23.79 | $21.14 | $19.27 |
| 16 | $90.73 | $48.96 | $35.16 | $28.34 | $24.32 | $21.69 | $19.86 |
| 17 | $91.20 | $49.44 | $35.65 | $28.85 | $24.85 | $22.25 | $20.44 |
| 18 | $91.68 | $49.92 | $36.15 | $29.37 | $25.39 | $22.81 | $21.02 |
| 19 | $92.16 | $50.41 | $36.66 | $29.90 | $25.94 | $23.38 | $21.61 |
| 20 | $92.63 | $50.90 | $37.16 | $30.43 | $26.49 | $23.95 | $22.21 |
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