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what formula are they using to calculate loan repayment amounts

Posted on 2014-04-03
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Last Modified: 2014-04-03
Hi

I'm looking at this online calculator and I cant see what formula they are using to calculate the repayments
http://www.carfinance247.co.uk/car-finance/car-finance-calculator.htm

Example 6000 at a flat rate loan over 24 months with interest of 5.6% is

(6000 * 0.056 * 2) + 6000 / 24 gives 278 per month whereas there's is 264. Most car finance companies in the uk are flat rate :( so I was wondering what these guys are using.

The interest rate for each credit rating can easily be seen in the html

The APR isnt of interest at this point

Thanks
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Question by:andieje
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4 Comments
 
LVL 20

Assisted Solution

by:carlmd
carlmd earned 250 total points
ID: 39975004
It is doing compound interest using this formula

Monthly payment = [rate + rate / ( (1+rate) ^ months -1) ] x principal loan amount
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5teveo earned 250 total points
ID: 39975019
Excel function generates 264

=PMT(0.056/12,24,6000)


more...

http://www.tvmcalcs.com/tvm/formulas/regular_annuity_formulas
target 'Periodic Payment when PV is known'

=6000/((1-(1/(1+ (0.056/12)) ^ 24) )/(0.056/12))
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Author Comment

by:andieje
ID: 39976800
I tried that function in excel before i posted but it gave me totally the wrong amount. I will double check now. What is the formula that underlies the excel PMT function. I only need to consider the principal, number of payments and interest rate.
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Author Closing Comment

by:andieje
ID: 39976807
Much obliged. Saved me hours of time :)
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