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Amortization Formula |
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Amortization Formula |
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where
| • | A = payment Amount per period |
| • | P = initial Principal (Loan Amount) |
| • | r = interest rate per period (Annual Percentage Rate divided by 12) |
| • | n = total number of payments (Term in months) |
Example: What would the monthly payment be on a 5-year, $20,000 car loan with a nominal 7.5% annual interest rate? We'll assume that the original price was $21,000 and that you've made a $1,000 down payment.
P = $20,000
r = 7.5% APR / 12 months = 0.625% per period
n = 5 years * 12 months = 60 total periods
The above results in a Payment Amount (A) of $400.76 per month.
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