Question

Suppose you have taken out $25,000 in student loans. The repayment will take the form of equal monthly payments for the next 10 years. If the interest rate on student loans is 4%, how much total interest will you pay throughout the life of this loan?

Answer 1

This can be solved using the Present Value of Annuity
Present value of Annuity is = P*(1-(1+r)^-n/r)
P is Periodic Payment is = ?
r is Rate of Interest per month = (4%/12) =0.33%
n is No of months = 10*12 = 120 Months
Present value of Annuity is = Loan = $ 25,000 /-
25000=P*(1-(1+0.003333)^-120/0.003333)
25000=P*98.77017486
P is Monthly Payment = $ 253.11 /- Approx.
Total Payments is = 253.11*120 = $ 30,373.54 /-
Interest payment is = Total Payment - Loan Payment
Interest payment is = (30373.54-25000)
Interest payment through out the loan life is = $ 5,373.54 /- Approx,