To calculate the amount of each monthly payment that goes towards interest on an installment loan, we can use the formula:
Interest = Principal x Interest Rate x Time
In this case, the principal (loan amount) is $20,000, the interest rate is 4.5% (or 0.045 as a decimal), and the term is 6 years.
First, let's calculate the total interest paid over the entire loan term:
Total Interest = Principal x Interest Rate x Time
= $20,000 x 0.045 x 6
= $5,400
The total interest paid over the 6 years is $5,400.
Next, let's calculate the interest portion of each monthly payment. Since the loan term is 6 years, or 72 months (6 years x 12 months/year), we can divide the total interest by the number of months:
Interest Portion of Monthly Payment = Total Interest / Number of Months
= $5,400 / 72
= $75
Therefore, $75 of each $315 monthly payment would go towards the interest on the loan.