Loan ammortization day 1

Front

What is loan amortization?

Back

Loan amortization is the process of paying off a loan over time through regular payments. Each payment covers both principal and interest, gradually reducing the total amount owed.

Front

What is the formula for calculating monthly loan payments?

Back

The formula for calculating monthly loan payments (M) is M = P[r(1+r)^n] / [(1+r)^n – 1], where P is the loan amount, r is the monthly interest rate, and n is the number of payments.

Front

What does 'compounded monthly' mean?

Back

'Compounded monthly' means that the interest on a loan is calculated and added to the principal balance every month.

Front

How do you convert an annual interest rate to a monthly interest rate?

Back

To convert an annual interest rate to a monthly interest rate, divide the annual rate by 12.

Front

If a loan has a principal of $10,000 and an annual interest rate of 6%, what is the monthly interest rate?

Back

The monthly interest rate is 0.5% (6% annual rate / 12 months).

Front

What is the total amount paid over the life of a loan?

Back

The total amount paid over the life of a loan is the sum of all monthly payments made until the loan is fully repaid.

Front

What is the difference between principal and interest?

Back

Principal is the original amount of money borrowed, while interest is the cost of borrowing that money, usually expressed as a percentage.

Front

How do you calculate the total interest paid on a loan?

Back

Total interest paid can be calculated by subtracting the principal from the total amount paid over the life of the loan.

Front

What is a fixed-rate loan?

Back

A fixed-rate loan is a loan where the interest rate remains the same throughout the life of the loan, resulting in consistent monthly payments.

Front

What is a variable-rate loan?

Back

A variable-rate loan is a loan where the interest rate can change over time, affecting the monthly payment amount.