Installment Loan
An installment loan is a loan that is repaid with a fixed number of periodic equal-sized payments. It is the most common method of amortizing an interest-bearing loan.
Each payment pays the interest on the outstanding balance and also repays a part of the principal. Over the term of the loan, as the outstanding balance decreases, the interest portion of each payment decreases and the principal portion increases. This shifting distribution is shown in an amortization schedule.
To view the amortization schedule, select the Show Details command in the Calculation menu.
To toggle between date and year/period view, click the first column header in the Details.
To change the start date, select the Start Date command in the Edit menu to open the Date Options dialog.
Input
| • nominal annual rate |
| • compounding frequency |
| • payment frequency |
| • number of years or payments |
| • present value (principal) of the loan |
Results
| • periodic payment |
| • future value |
| • total paid |
| • total interest |
Examples
| • | A debt of $1,000 with interest at 6 % compounded semiannually is to be amortized by equal monthly payments over the next three years, the first payment due in one month. What will be the monthly payment?
Answer: $30.39. |
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| • | A city borrows $500,000 at 10 % compounded semiannually and amortizes the debt with equal semiannual payments over 15 years. What will be the semiannual payment?
Answer: $32,525.72. |
Related topics
| Nominal annual rate |
| Compound interest |
| Balloon Payment Loan |
| Rule of 78 Loan |
| Interest Only Loan |
| Fixed Principal Loan |
| Sinking Fund Loan |
| Prepaid Interest Loan |
| Extra Principal Payments Loan |