The Scenario
You are taking out a $100,000 business or personal loan. The lender offers a 5% annual interest rate, and the repayment term is 5 years (60 months). You want to know your exact monthly payment and how much interest you will pay in total.
Calculation Steps
1
Identify the Principal (P): $100,000
2
Identify the Annual Rate (r): 5% or 0.05
3
Identify the Term (n): 5 years × 12 months = 60 monthly payments
4
Calculate the Monthly Rate (i): 0.05 / 12 = 0.004166...
5
Apply the Amortization Formula: Payment = P × (i × (1 + i)^n) / ((1 + i)^n - 1)
6
Calculate the Payment: 100,000 × (0.004166 × (1.004166)^60) / ((1.004166)^60 - 1)
Final Result
Your monthly payment will be $1,887.12. Over the 5-year term, you will pay a total of $13,227.40 in interest, making the total repayment amount $113,227.40.