How to Calculate Bank Loans

Banks offer loans for a wide range of purposes, including mortgages, autos and personal needs. Typically, mortgages have the lowest rates because they are secured by your home, while unsecured personal loans have the highest rates. Each loan will have a set installment payment you will make to pay it back over time. If you don't want to work through the math manually, you can also use online loan calculators to find the monthly payment (see Resources).

Multiply the periodic interest rate of your bank loan by the amount borrowed. For example, if you make monthly payments, you borrowed $4,650 and your loan charges a rate of 0.82 percent each month, you would multiply $4,650 by 0.0082 to get $38.13.

Add 1 to the periodic interest rate. In this example, you would add 1 to 0.0082 to get 1.0082.

Compute the total number of payments you have to make on your bank loan. Multiply the payments per year by the number of years you will take to repay the loan. For example, if you will repay your loan over three years, you would multiply three by 12 to get 36 payments.

Make the number of payments in the life of the loan negative. In this example, you would change 36 to negative 36.

Raise the step 2 answer to the power of the step 4 result. In this example, you would raise 1.0082 to the negative 36th power to get 0.745279282.

Subtract the step 5 result from one. In this example, you would take away 0.745279282 from 1 to get 0.254720718.

Find the monthly payment on the bank loan by dividing the step 1 result by the step 6 result. Completing this example, you would divide $38.13 by 0.254720718 to find the monthly payment on the bank loan to be $149.69.

References

About the Author

Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."