How to Calculate Installment Payments

Installment loans are typically offered by banks and lending institutions. These loans allow the borrower to make monthly payment sover the course of the loan term. There are dozens of free installment loan payment calculators available online and through the financial institution, but consumers or lenders can also calculate the payment amount using a simple formula.

Instructions

1

Calculate the monthly interest rate (I). This is the interest rate quoted by the bank, divided by 1,200. As an example, we will use 7.5 percent so our monthly interest rate will be .00625.

2

Calculate your loan period (t). This is the number of years quoted by the lender, multiplied by 12 to yield total number of months. As an example, we will use a period of 3 years so 't' equals 36 months.

3

Calculate 'V'. V is the inverse of 1 plus your monthly interest rate (I), to the 't' power. As an example, this will be .994 to the 36th power, or approximately 0.765.

4

List your variables. You now have all the variables to calculate your monthly payment. The formula for your monthly payment (R) is: R = (I) divided by (1 minus V), multiplied by the Principal (P). As an example, this will be .00625 divided by (1 minus .765), multiplied by our Principal ($35,000).

5

Complete the calculation. Insert the values for each variable; this will be your monthly payment (R). In this example, the monthly payment on a $35,000 car loan for 36 months at an interest rate of 7.5 percent is approximately $930.85.