I loaned them $2300. Interest rate is 4% per year. They are paying back $200/month. I know there is a formula for this. I would like the formula, or at least a figure for the total interest they will owe.
If you are you simple interest and are simply charging them 4% on the total amount, then you would charge them as follows
2,300 * .04 = $92.00 in interest
So they would have to pay you back $2,392 in total
If you were calculating the loan similar to how a bank might calculate a mortgage, then technical each time they paid 200.00, some of that money would be going to principal and the following month, they would owe less in principal than the previous month. As such you would have to do an amortization schedule. It might look like this (total interest paid would be about ($49.21) <it doesnt’ come out to good in text format>
Month Balance Payment Interest Principal
1 2,300.00 200.00 7.67 192.33
2 2,107.67 200.00 7.03 192.97
3 1,914.69 200.00 6.38 193.62
4 1,721.07 200.00 5.74 194.26
5 1,526.81 200.00 5.09 194.91
6 1,331.90 200.00 4.44 195.56
7 1,136.34 200.00 3.79 196.21
8 940.13 200.00 3.13 196.87
9 743.26 200.00 2.48 197.52
10 545.74 200.00 1.82 198.18
11 347.56 200.00 1.16 198.84
12 148.72 200.00 0.50 148.71
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References :
You need a loan amortization schedule. You can do it in Excel. On the web, there are calculators all over the place. Go to bank rate and look for the loan amortization calculator.
References :
http://www.bankrate.com
The total amount of interest they will pay is approximately $50 if they borrow this money for a year. The easiest way to see it is to go to http://www.bankrate.com, and use their loan calculator to figure out an amortization table.
Here is a link:
http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx
If you enter the original amount ($2,300), the loan term (12 months), the interest rate 4%, it will tell you the monthly payment (which turns out to be $195.84. Then click on the part that says "show recalculation table" and it will give you a schedule of all payments by month, including how much is interest and how much is repayment of the loan principal. In this case, the $50 in interest costs is off a little bit, because they are paying more than the $195.84 payment required, but it is close enough.
The way to figure it out long-hand is to take the balance owed at the end of the month, multiply by 0.04 and divide by 12 to get the interest for that month.
References :
If you are you simple interest and are simply charging them 4% on the total amount, then you would charge them as follows
2,300 * .04 = $92.00 in interest
So they would have to pay you back $2,392 in total
If you were calculating the loan similar to how a bank might calculate a mortgage, then technical each time they paid 200.00, some of that money would be going to principal and the following month, they would owe less in principal than the previous month. As such you would have to do an amortization schedule. It might look like this (total interest paid would be about ($49.21) <it doesnt’ come out to good in text format>
Month Balance Payment Interest Principal
1 2,300.00 200.00 7.67 192.33
2 2,107.67 200.00 7.03 192.97
3 1,914.69 200.00 6.38 193.62
4 1,721.07 200.00 5.74 194.26
5 1,526.81 200.00 5.09 194.91
6 1,331.90 200.00 4.44 195.56
7 1,136.34 200.00 3.79 196.21
8 940.13 200.00 3.13 196.87
9 743.26 200.00 2.48 197.52
10 545.74 200.00 1.82 198.18
11 347.56 200.00 1.16 198.84
12 148.72 200.00 0.50 148.71
References :