Understanding Loan Calculations

Introduction

This guide explains the formulas and concepts behind loan calculations.

Key Loan Parameters

  • Loan Amount (Principal):
    The initial amount of money borrowed.

  • Interest Rate:
    The percentage charged by the lender for borrowing the money.

  • Loan Term:
    The length of time you have to repay the loan.

  • Monthly Payment:
    The amount you pay each month to repay the loan.

Loan Calculation Formulas

  • Monthly Payment (M):
    M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
    Where:
    P = Principal loan amount
    i = Monthly interest rate
    n = Number of months

  • Total Payment:
    Total Payment = Monthly Payment * Number of Months

  • Total Interest:
    Total Interest = Total Payment - Principal

Understand loan calculations with this guide!

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