| It is critical to know how much your payments will be | | | | In Excel type: =20000+1440+300+21 |
| with a range of interest rates before you enter into a | | | | Results will be: $21,721 |
| loan agreement. In this article I will show you how to | | | | The total amount (principle) that the loan will be based |
| calculate your monthly loan payments fast and easy. | | | | on is $21,721. |
| Without this knowledge you may develop a severe | | | | 5. To calculate what the monthly payment will be use |
| rebound headache when talking to a loan officer! | | | | the following formula: |
| 1. Access Microsoft Excel. | | | | Use the "=PMT" calculation in Excel. The formula looks |
| 2. The following items need to be obtained: | | | | like this: =PMT(annual interest rate/12, term, principle) |
| - Obtain the cost of the item to be purchased (in our | | | | (PMT stands for Payment) |
| example we will use $20,000 as the cost). | | | | In Excel Type: =PMT(.065/12,36,21721) (Note that 6.5% |
| - Determine the tax rate (we will assume 7%). | | | | = .065) |
| - Other incidental charges that may be added to the | | | | Results will be: ($665.73) |
| purchase price (we will assume $500). | | | | Your monthly payment will be $665.73 |
| - The tax rate (if any) on these other incidental | | | | 6. To determine how much you will pay over the term |
| charges (for our example we will assume that 7% tax | | | | of the loan proceed as follows. Multiply the monthly |
| will apply to $300 and 0% to the remaining $200). | | | | loan amount x 36. |
| - The loan term in months (36 months). | | | | In Excel type: =665.73*36 |
| - The annual interest rate (6.5%). | | | | Results will be: 23,966.28 |
| 3. The next step is to calculate the taxes. | | | | 7. To determine how much of your total payment will |
| Taxes on Item purchased: In Microsoft Excel type: | | | | be caused by interest alone. |
| =20000*.07 | | | | Subtract the initial principle amount from the total |
| Results will be 1440 | | | | amount paid. |
| Taxes on Incidental Items: | | | | In Excel type: =23966.28- 21,721.00 |
| In Excel type: =300*.07 | | | | Results will be: $2,245.28 |
| Results will be 21 | | | | Of the total payments made over 36 months |
| 4. Calculate your total expenses. | | | | ($23,966.28), $2,245.28 will be from interest. If this |
| Add the purchase item plus the taxes ($20,000 + | | | | purchase were paid in full at time of sale, the total cost |
| $1,440 = $21,440) plus the incidentals plus their taxes | | | | will be $2,245.28 less than if it is paid off over a 36 |
| ($300 + $21 = 321) | | | | month loan @ 6.5% annual interest. |