How Do You Calculate Payments on a Simple Interest Loan?

# How Do You Calculate Payments on a Simple Interest Loan?

Calculate payments on a simple interest loan by first multiplying the principal amount by the interest rate and the length of the loan term. Add the interest to the principal amount and then divide by the number of payments to be made.

1. Find the important values

Determine the values for the simple interest formula I=PRT. In the formula, P represents the original loan amount, also called the principal amount. R stands for the interest rate. Convert the interest rate to a decimal by dividing by 100. For example, convert 15 percent to 0.15 in the formula. T is the amount of time it takes to pay back the loan. For a four-year term, T would equal four.

2. Calculate the interest

Fill in the simple interest formula I=PRT with the principal, interest rate and length of time. Multiply these values together to find the total interest of the loan.

3. Determine the monthly payments

Find the total amount owed on the loan by adding the principal amount with the interest found in Step 2. Divide this amount by the number of payments in the payment schedule. For example, if the loan has monthly payments for two years, divide by 24 to find the monthly payment amount.

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