Calculating a Monthly Payment

Ever wonder how to calculate a monthly payment without using a spreadsheet software such as MS Excel?

Well below is the formula:

• P = principal, the initial amount of the loan
• I = the annual interest rate (from 1 to 100 percent)
• L = length, the length (in years) of the loan, or at least the length over which the loan is amortized.

The following assumes a typical conventional loan where the interest is compounded monthly. First I will define two more variables to make the calculations easier:

• J = monthly interest in decimal form = I / (12 x 100)
• N = number of months over which loan is amortized = L x 12

Okay now for the big monthly payment (M) formula, it is:

                              J         M  =  P  x ------------------------                      1  - ( 1 + J ) ^ -N

   where 1 is the number one (it does not appear too clearly on some browsers)

Pretty complicated huh?

Well I whipped up a little webpage script to do it all for you if you enter in your 3 main variables (Amount, Years financed, and Interest Rate). I wanted it to use for my blackberry, so it is very mobile-focused. (Read as nothing fancy, but it is fast loading)

Monthly Payment Calculator

Thanks goes to Karl for the above formula.

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