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How to calculate loan repayment cost

How to calculate loan repayment cost - (A)

To calculate the loan repayment cost, you need to consider a few key factors: the loan amount, the interest rate, and the loan term (duration). Here’s a step-by-step guide on how to calculate the loan repayment cost:

Determine the loan amount: This is the total amount you are borrowing from the lender.

Identify the interest rate: The interest rate is the percentage charged by the lender on the loan amount. It represents the cost of borrowing. Make sure to convert the interest rate to a decimal.

Determine the loan term: The loan term is the length of time you have agreed upon with the lender to repay the loan. It is usually measured in months or years.

Calculate the monthly interest rate: Divide the annual interest rate by 12 to get the monthly interest rate.

Monthly Interest Rate = Annual Interest Rate / 12

Calculate the number of payments: Multiply the loan term (in years) by 12 to convert it to the number of monthly payments.

Number of Payments = Loan Term (in years) * 12

Calculate the monthly payment amount using the following formula:

Monthly Payment = (Loan Amount * Monthly Interest Rate) / (1 – (1 + Monthly Interest Rate) ^ -Number of Payments)

Calculate the total repayment cost: Multiply the monthly payment amount by the total number of payments.

Total Repayment Cost = Monthly Payment * Number of Payments

By following these steps, you can calculate the loan repayment cost. Keep in mind that this calculation assumes a fixed interest rate and equal monthly payments throughout the loan term. Actual loan terms may vary depending on the lender and specific loan agreement.


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