How Do You Calculate Monthly Interest & Principle Payments?
Each monthly payment on a loan that you are paying back goes toward both interest and toward paying down the principal. The principal is what remains to be paid off of the original loan amount. You don’t need a financial calculator to determine how a monthly loan payment breaks down into the interest payment and the principal payment. You can calculate it directly using arithmetic. Solve for the rate of interest accumulation, I, between payments. For example, if APR is 8%, then the rate between monthly payments is (1+0.08)^(1/12)-1=0.6434%. In other words, take the APR plus 1 and raise it to the one-twelfth power, then subtract 1. (It’s a good idea to use up to four decimal places, since you’ll be raising a function of the interest rate, I, to several powers.) Solve for the monthly payment amount, MTH, which equals L*I/[1-1/(1+I)^N], where L is the loan amount, I is the rate of interest accumulation between payments (found in Step 1), and N is the number of payments. For example, suppo
