How do you calculate last month balance and a month after?

Question

I'm not good with math so please help me out. I ordered a vod for my loan, how do i calculate by using average balance to know my last month balance and the month after.

Thanks

vod is verification of deposit

Answer 1

VOD = what?

If you just want to calculate your balance, this is how you do it.

Example:

Loan = $10,000
Interest rate = 5% per year
You pay = $500/month down towards the "principal" (aka the loan without interest)

Month 1: 10000 - 500 = 9500 *pretend no interest is paid this month

Month 2: 9500 - 500 = 9000 + ((9500 x 0.05)/12) = 9039.58

Explanation:

Month 1: Your full big beginning balance is 10,000. Since you paid down $500 towards the principal and pretend interest is charged beginning Month 2, your beginning balance for next month is 10,000 minus what you paid, which equals 9500.

Month 2: You now start off with $9500 as your beginning balance, and you minus another $500 because you paid it towards the principal in month 2.

But don't forget the interest now!!

To calculate the interest for Month 1 (because since started with a new balance in a new month, you have to pay the interest on the previous "beginning" balance, which would be Month 1):

Take beginning balance ($9500) and multiply it by 0.05 (which stands for the 5% interest). This will equal out to $475, but that isn't per month, that's a full year's interest (12 months worth).

This means that $475 needs to be divided into 12 (for the 12 months), and that is how much interest is being paid on your current balance per month.

So 475 / 12 = $39.58 = your interest for Month 1, which is what you have to add back to your principal (main) balance for Month 2.

You add that $39.58 back onto the beginning balance for Month 3 (which is 9000), and that's your balance for month 3.

So now for Month 3:
You start with 9039.58 as your beginning balance.
Minus out another $500 for what you paid, and it becomes: $8539.58
And calculate the interest on your month 3 beginning balance.
9039.58 x 0.05 = 451.98
And divide that number in 12, to represent 12 months, as it is an annual number
451.98 / 12 = 37.66 = your interest for the previous Month 2.

So 8539.58 + 37.66 = 8577.244

Which is your new beginning balance for Month 4.


Or if you don't care to really learn some good solid math that will help you for the rest of your life.. just use a calculator online:

http://www.bankrate.com/brm/popcalc2.asp