Equated monthly payments are loans payments which are in equal amounts each month of loan repayment. To contrast, variable payments will differ each payment on the amount due. It is beneficial to be able to calculate loan payments in order to plan monthly budgets. For example, a £6,500 loan, repayable in two years, that has an interest rate of 10 per cent will require monthly payments of £299.90.
- Skill level:
- Moderately Easy
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Divide the interest rate by 12 to calculate the interest per month. For example, 10 per cent divided by 12 equals 0.00833.
Add 1 to the interest per month. For example, 1 plus 0.00833 equals 1.00833.
Raise the number calculated in Step 2 by the power of the number of months of repayments. The number of months of repayments is an exponent. For example, 1.00833 to the power of 24 months, which equals 1.220391.
Subtract one from the number calculated in Step 3. In the example, 1 minus 1.220391 equals 0.0220391.
Divide the interest per month by the number calculated in Step 4. For example, 0.00833 divide by 0.0220391, which equals 0.037812.
Add the interest rate per month to the number calculated in Step 5. For example, 0.00833 plus 0.037812 equals 0.046145.
Multiply the principal by the number calculated in Step 6 to determine the monthly payment. For example, £6,500 times 0.046145 equals monthly payments of £299.90.
Tips and warnings
- To simplify calculations use a spreadsheet program such as Microsoft Excel.
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