Question

Suppose you have the following three student​ loans: ​$11,000 with an APR of 6.5​% for 17 ​years, ​$18, 000 with an APR of 7% for 22 ​years, and ​$13,500 with an APR of 8​% for 12 years.

a.	Calculate the monthly payment for each loan individually.
b.	Calculate the total​ you'll pay in payments during the life of all three loans.
c.	A bank offers to consolidate your three loans into a single loan with an APR of 7% and a loan term of 22 years. What will your monthly payments be in that​ case? What will your total payments be over the 22 years?

Answer 1

a]

Loan 1

Monthly loan payment is calculated using PMT function in Excel :

rate = 6.5% / 12   (converting annual rate into monthly rate)

nper = 17*12 (17 year loan with 12 monthly payments each year)

pv = 11000 (loan amount)

Loan 2

Monthly loan payment is calculated using PMT function in Excel :

rate = 7% / 12   (converting annual rate into monthly rate)

nper = 22*12 (22 year loan with 12 monthly payments each year)

pv = 18000 (loan amount)

Loan 3

Monthly loan payment is calculated using PMT function in Excel :

rate = 8% / 12   (converting annual rate into monthly rate)

nper = 12*12 (12 year loan with 12 monthly payments each year)

pv = 13500 (loan amount)

b]

Total you will pay = monthly payment * (number of years * 12)

c]

Monthly loan payment is calculated using PMT function in Excel :

rate = 7% / 12   (converting annual rate into monthly rate)

nper = 22*12 (22 year loan with 12 monthly payments each year)

pv = 42500 (total loan amount = $11,000 + $18,000 + $13,500 = $42,500)

Monthly loan payment is $315.96

Total payments =  monthly payment * (number of years * 12)