Fixed Installment Loan Calculation

Fixed Installment Loan Calculation

Fixed installment loan installment can be calculated by dividing the loan amount by the annuity factor.  This would provide us the equal cash outflows (loan installment).

Fixed Installment Loan Calculation Example

Mr. Saleem is planning to take 1 million $ from a bank. Interest rate is 12% and term of loan is 5 years, what would be yearly installment.

Solution

In first place we would calculate, the annuity factor, and then we would divide the loan amount by the annuity factor.

1.    Annuity Factor

Annuity Factor= 1-(1.012)^-5

                           .12

Annuity Factor = 3.60

2.    Fixed installment

Annual installment = 1,000,000/ 3.60

277,777 – Yearly installment