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Understanding Loan Repayments
When you take out a loan, it's essential to understand how your repayments are calculated. The monthly payment is determined based on the loan amount, the annual interest rate, and the loan term.
Formula:
Monthly Payment = [P x r x (1 + r)^n] / [(1 + r)^n – 1]
- P = Loan amount
- r = Monthly interest rate (annual rate divided by 12)
- n = Total number of payments (loan term in months)
Using this formula helps you determine how much you'll pay each month, the total amount over the life of the loan, and the total interest paid.