Question

You get a 72 month loan. The interest rate is 6.0% APR and the loan is for $20,000. How much interest and principal will you pay the first month of the loan? How much interest and principal will you pay during the first year? Solve without Excel using financial calculator or formulas.

Answer 1

Calculating Monthly payment,

Using TVM Calculation,

PMT = [PV = 20,000, FV = 0, N = 72, I = 0.06/12]

PMT = $331.46

Interest in 1st month = 20,000(0.06/12) = $100

Principal paid in 1st month = 331.46 - 100 = $221.46

Calculating Loan Balance at the end of Year 1,

Using TVM Calculation,

FV = [PV = 20,000, PMT = -331.46, N = 12, I = 0.06/12]

FV = $17,144.81

Principal Paid in 1st year = 20,000 - 17,144.81 = $2,855.19

Interest Paid in 1st year = 12(331.46) - 2,855.19 = $1,122.33