Q&A for How to Calculate Annual Percentage Rate

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What is the 1,200 used when multiplying for an APR on a loan?

Community Answer

This is 12 months multiplied by 100 percent to arrive at an APR for a year expressed in percentage.

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How do I calculate the interest paid given the loan amount and the amount repaid?

Community Answer

When you subtract the loan amount from the amount repaid, the answer is the amount of interest you paid. For example, if you borrow $100 and have to pay back $110, since $110 - $100 = $10, you paid $10 in interest.

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Question

Why does one multiply by 1200? What does it mean when determining an APR?

Community Answer

Interest equals principal times rate times time. To find out the percentage or rate take the principal multiplied by the time and divide by the interest accrued.

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What will be the balance if I subtract 25% from $12,000,000?

Community Answer

100% - 25% = 75%. 75% x $12,000,000 = $9,000,000.

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How do I calculate my monthly repayments with a given interest rate?

Community Answer

Divide your interest rate by the number of payments you'll make in the year (interest rates are expressed annually). So, for example, if you're making monthly payments, divide by 12. 2. Multiply it by the balance of your loan, which for the first payment, will be your whole principal amount.

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Question

My APR is 5.24% on a 6 year loan for $38,000 principle. How much will the total loan cost be?

Community Answer

I wrote The Loan Payment and Payoff Index. To calculate the cost of this loan I used the index to calculate your monthly payment. I multiplied the monthly payment by 72 monthly payments (6 years) to calculate how much you will be paying back. Then I subtracted the original $38,000 borrowed from the total you will have to pay back. The loan will cost you $6,365.27.

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What is the "finance charge" in English?

Donagan

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A "finance charge" consists of interest and transaction fees associated with a credit card or a loan.

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Why does most of the first years of mortgage payments go towards interest payments instead of principal payments?

Community Answer

You pay interest on the amount borrowed for a particular month. Since you're borrowing the most money at the beginning of the loan, you're also paying the most interest. At the beginning of a $300k loan with 4% interest rate, you'll pay $1000 in interest the first month ($300k x 0.04) / 12 = $1000. Let's say your monthly payment is $1432 for the 30-year loan. This means your first month's payment reduced the amount owed by $432 (i.e., $1432 - $1000). The next month, you'll pay 4% interest on $299568 (i.e., $300k - $432), which is $998.56 in interest and $433.44 towards principal.

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