I have been using the given formula to figure out if I got a loan of $7,000 at 7% annual interest, how much more is the monthly payment for a 12-month term than for an 18-month term?
I believe this formula is probably a bit easier to use, taken from reference.
- P = monthly payment
- L = principal
- i = monthly interest rate
- n = number of payment periods
so you run this once with L = 7000, i = 0.07/12, n = 12, then run again with n = 18
For 12 months the monthly payment is: $605.69 for 18 months the monthly payment is: $410.79
so the monthly difference in payment amounts = $194.90
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As I look at your formula closely, I think its correct. The only 'trick' is understanding that interest rate, expressed as percent (7%), gets written as 0.07, and the monthly interest rate is the annual rate / 12 (as in 12 months per year).