To calculate the monthly installment for a loan, you need three main variables: the amount borrowed (principal), the annual interest rate (APR), and the loan term (number of months). The standard formula used is:
M = P × r × (1 + r)n / [(1 + r)n − 1]
- M = monthly payment
- P = principal (amount borrowed)
- r = monthly interest rate (annual rate divided by 12, e.g., for 6% annual: 0.06/12 = 0.005)
- n = loan term in months
For example, if you borrowed $20,000 at an APR of 6% over 60 months, your monthly rate is 0.005, and you plug the values into the formula above to solve for M[1][2][3][4].
Alternatively, most loan and mortgage websites provide calculators that let you enter the principal, interest rate, and term to automatically calculate the monthly payment[5][6].