140k views
1 vote
On an installment loan of 20000, with a term of 6 years and an interest rate of 4.5% how much of a 315 monthly payment would be interest?

User Jimmy Ko
by
8.9k points

1 Answer

2 votes
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.
User Balexandre
by
7.9k points
Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.