Question

A person wants to take out a loan of $1,5000. 1 year simple interest amortized loan at 6%, with monthly payments. calculate the monthly payments. explain how you got your answer.

Answer 1

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                            15,000
Rate of interest per period:
Annual rate of interest		6.000%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.06 /12 =	0.5000%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	1.00
Total number of payments	N	1 × 12 =	12
Period payment using the formula	=	[ 15000 × 0.005 × (1+0.005)^12] / [(1+0.005 ^12 -1]
Monthly payment	=	$                                                         1,291.00
Loan payment		$                                                         1,291.00
Real estate taxes		$                                                            515.00
Insurance		$                                                              41.67
Total monthly payment		$                                                        1,847.67
Total interest pay:
Total payments	=	1291 × 12
		$                                                      15,492.00
Less principle amount		$                                                      15,000.00
Interest payment- Finance charge		$                                                            492.00

Monthly payment using the formula is $1291.

Total payments made during the year then equals = 15,492 but loan is only 15,000

That makes balance 492 interest payment towards the loan