As a borrower, you must want to know the process to calculated interest on the financial aid. In fact, you can at least get to wether you are being overcharged or not. The following calculation is generally being used to calculate interest on amortized loan.
The calculation formula is:
P= P. R. (1+R)N / (1+R)N -1 = P. r/n. (1+r/n)n.t / (1+r/n)n.t -1
Explanation of the symbolic terms:
Here the calculation represents p as payment method, n as number of payment per year, t is number of years, N is n.t which is the total number of payments. R equals to annual interest rate, R represents r/n which is the periodic year and lastly P as original principal. This is how you can calculate interest on amortized loans.
For example, you have borrowed loan of 20,000 dollar. You have got the finance with an interest rate of 12% and you will have to repay the loans within three years of time. So, now you want to know your monthly payments. According to the formula your monthly payments would be $664.29. So, you will have to repay 664 dollar each month.
And if you count it for three years you will have to pay $23,914.44 dollar in total. Totally you will have to carry 36 installments. So, if you minus the principal amount from the total amount to be repaired, you will find the total interest to be repaid. So, the total interest is 23,914.44 – 20,000 which is equals to $3,914.44.
Repayment in each month:
However, the borrower would have to repay the loan with the maintenance of so called amortized schedule. According to that schedule, if the periodic monthly interest rate is 12%, you will have to pay 1% interest on the loan amount. 0.1% of the loan amount is $200 dollar only. So, your first month interest would be 664 – 200 which equals to 464 dollar.
After the first month the principal amount gets down. If you count that normally, you will find that the huge principal amount got decreased from 20,000 with a minus of $464 and that equals to 19,535 dollar. So, on the second month the monthly interest on the principal amount is 195.36. so, in times of second payment, the interest amount is 484 dollar. In this way the interest for 36 months would be calculated.
This is how you will have to calculate interest on amortized loan. With all the calculation of each month’s repayment, the lenders generally make and amortized table and then the repayment would be performed by the borrowers. Read news for more information.