2.12 Monthly Payments

Front

What is the formula to calculate monthly payments on a loan?

Back

Monthly Payment = (Principal × Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^-Number of Payments)

Front

What does APR stand for in the context of loans?

Back

APR stands for Annual Percentage Rate, which represents the yearly interest rate charged on borrowed money.

Front

How many monthly payments are there in a 5-year loan?

Back

There are 60 monthly payments in a 5-year loan.

Front

If a loan has an APR of 12%, what is the monthly interest rate?

Back

The monthly interest rate is 1% (12% annual rate divided by 12 months).

Front

What is the impact of a higher APR on monthly payments?

Back

A higher APR increases the monthly payment amount, as more interest is charged on the loan.

Front

What is the principal in a loan?

Back

The principal is the original sum of money borrowed or the amount still owed on which the interest is calculated.

Front

How do you calculate the total cost of a loan?

Back

Total Cost = (Monthly Payment × Number of Payments) - Principal.

Front

What is the difference between fixed and variable interest rates?

Back

Fixed interest rates remain the same throughout the loan term, while variable rates can change based on market conditions.

Front

What is a loan amortization schedule?

Back

A loan amortization schedule is a table that details each payment's breakdown into principal and interest over the loan term.

Front

What factors can affect the monthly payment of a loan?

Back

Factors include the loan amount, interest rate, loan term, and whether the interest rate is fixed or variable.