Question

Madelyn just graduated from college and owes $15,100 on her student loans. The bank charges a monthly interest rate of 0.2%. If Madelyn wants to pay off her student loans using equal monthly payments over the next 12 years, what would the monthly payment be, to the nearest dollar?

Answer 1

$121

Explanation:

A suitable calculator or spreadsheet can tell you the payment amount for the given loan values. The annual interest rate will be 12 times the monthly, rate, or 2.4%. The number of monthly payments in 12 years is 12×12 = 144.

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A calculator shows the monthly payment will be about $121.

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If you want to figure this "by hand," the amortization formula is used.

A = Pr/(1 -(1+r)^-t)

where P is the loan amount, r is the monthly interest rate, and t is the number of months.

A = 15100(0.002)/(1 -(1.002^-144)) ≈ 120.789 ≈ 121

The monthly payment would be $121.