A lot of the time, we are given a incorporate variables and we want to intuit the payments on a loan. For example, you are trying to finance a ,000 car at a 12% interest rate for 5 years. All you want to find out is how much your monthly payment is going to be and either or not you can afford that payment. Just a heads up - you will need a calculator to outline out these payments. Since you are probably on a computer right now, you can use the calculator on your computer, or you can use excel.
Lets use the example above and try to intuit out your monthly payment. First, let's set some terms. Pv (Present Value) of the loan is going to be ,000. Your interest rate per year is going to be .12. However, since we are trying to intuit out Monthly payments, we are going to want to turn this 12% per year into a monthly rate. This is as simple as dividing .12 by 12 which gives you .01 or 1%. Finally, we are going to want to define our amount of payments, n. We know that it will be 5 years, but we need to turn that into months. simple as multiplying 5 by 12 which gives you 60 months.
How to guess Payments on a Loan
Ok, so here are our variables:
Total amount of payments: n=60
Interest: i=0.01
Present Value: pv=10000
The easiest way to intuit payments is to use a spreadsheet on your computer like excel. Open up the program, plump a cell and type in the following exactly (without the quotes): "=Pmt(0.01,60,10000)". Hit enter. This will automatically intuit out your monthly payment of "-2.44". This is what your monthly payment on your car loan should be, given those exact variables. I am sure that the loan you are trying to intuit payments on has different variables, so here is the equation using variables instead of values: "=Pmt(i,n,pv)". To intuit payments on your loan, just replace the i with interest, n with amount of payments and pv with the total loan amount.
No comments:
Post a Comment