When purchasing a car or a home, many people will have to take out loans from a banking institution. These loans will need to be paid back usually on a monthly basis, the repayment including a combination of the loan principal (the amount that was borrowed) and interest. To find how much you will need to pay, the borrower will need to know the amount of the loan, the interest rate per year and the amount of time you will be repaying the loan.

1. • 1

     Divide the interest rate by 12. In our example, the interest rate is 6%, or 0.06. Dividing 0.06 by 12 equals 0.005.

   • 2

     Add 1 to the number found in Step 1. For our example, that means 0.005 plus 1, which equals 1.005.

   • 3

     Take the number found in Step 2 to the power of the number of months the loan is for. (For example, if a loan is for five years, multiply 5 times 12, the number of months in a year, to get 60 months.) In our example, take 1.005 to the 60th power to get 1.34885.

   • 4

     Subtract 1 from the number found in Step 3. In our example, that means 1.34885 minus 1, which equals 0.34885.

   • 5

     Divide the rate found in Step 1 by the number found in Step 4. In our example, that means dividing 0.005 by 0.34885, which gives you 0.0143328.

   • 6

     Add the rate from Step 1 to the number found in Step 5. In our example, that means adding .005 by 0.0143328 which gives you 0.0193328.

   • 7

     Multiply the number found in Step 6 by the amount that the loan is for. In our example, that means multiplying 0.0193328 by $5,000, which gives you $96.66. This is the amount of the monthly payment you must make for 60 months (or 5 years) to repay a loan of $5,000 with an interest rate of 6%.