Question

You want to buy a car, and a local bank will lend you $10,000. The loan would be fully amortized over 6 years (72 months), and the nominal interest rate would be 10%, with interest paid monthly. What is the monthly loan payment

Answer 1

$185.26

Explanation:

The computation of monthly loan payment is shown below:-

Loan Amount = PV = $10,000

r = monthly interest rate = 10% ÷ 12 = 0.833%

n = 72 months

Monthly loan payment = (r × PV) ÷ (1 - (1 + r)^ -n)

= (0.833% × $10,000) ÷ [1 - (1 + 0.833%)^ -72)

= $83.33 ÷ 0.4498

= $185.258432

or

= $185.26

Therefore for computing the monthly loan payment we simply applied the above formula.