Knowing your monthly payment before you borrow helps you set a budget, compare offers, and avoid surprises. This guide shows you the standard loan payment formula, how to plug in your numbers, and what’s different for crypto-collateralized borrowing (APR, LTV, collateral buffers, and liquidation risk).
The Core Formula (Amortized Loan)
Monthly Payment (M) = P × r × (1 + r)^n ÷ ((1 + r)^n − 1)
Where:
• P = principal (the amount you borrow)
• r = periodic interest rate (APR ÷ 12 for monthly payments)
• n = total number of payments (months)
Plain-language summary: convert APR to a monthly rate, raise (1 + r) to the number of months, and apply the fraction. The result (M) is the fixed monthly amount you’ll pay until the loan is fully repaid.
What You Need Before You Calculate
• Principal (P): Amount you want to borrow in fiat or stablecoins.
• APR: The annual percentage rate for your crypto loan.
• Term (n): Loan length in months (e.g., 6, 12, 24).
• Payment frequency: Monthly is standard for this formula.
• Fees: If applicable (origination, service), note whether they’re paid upfront or included in principal.
Worked Example (Step-by-Step)
Scenario: You borrow $10,000 at a 9% APR for 24 months.
- Convert APR to monthly rate:
r = 0.09 ÷ 12 = 0.0075 - Compute monthly payment using the formula:
M ≈ $456.85 per month - Meaning:
• You make 24 payments of about $456.85.
• Each payment includes some interest and some principal.
• Over time, the interest portion shrinks as the balance falls.
Mini Amortization Snapshot (First 3 Payments, Example Above)
All amounts rounded to cents.
• Month 1 — Payment: $456.85 | Interest: $75.00 | Principal: $381.85 | Remaining: $9,618.15
• Month 2 — Payment: $456.85 | Interest: $72.14 | Principal: $384.71 | Remaining: $9,233.44
• Month 3 — Payment: $456.85 | Interest: $69.25 | Principal: $387.60 | Remaining: $8,845.84
Crypto-Specific Considerations (OmniLender Context)
- Collateral and LTV
• LTV (Loan-to-Value) = Loan Amount ÷ Collateral Value.
• Example: A $10,000 loan at 50% LTV requires $20,000 in crypto collateral.
• Best practice: Maintain a 10–20% collateral buffer above the minimum to reduce liquidation risk if prices dip.
2. Liquidation Thresholds and Buffers
• If your collateral value falls and LTV climbs above the threshold, you may face a margin call or liquidation.
• Tip: Set price/LTV alerts; add collateral or repay promptly if LTV rises too much.
3. APR, Fees, and True Cost
• Compare APRs across terms; shorter terms reduce total interest.
• Account for origination/maintenance fees.
• If fees are financed (rolled into P), your monthly M increases slightly.
4. Taxes and Strategy
• Borrowing lets you access liquidity without selling crypto, which can help defer taxable events.
• Not tax advice, consult a professional for your situation.
How to Estimate Your Own Monthly Payment (Checklist)
Choose principal (P).
Get APR and convert to monthly r = APR ÷ 12.
Choose term (n months).
Apply the formula to find M.
If fees are financed, add them to P before calculating.
Confirm the payment fits your monthly budget.
Check collateral plan: LTV, buffer, liquidation threshold.
Comparing Offers the Smart Way
• Apples-to-apples: Use the same P and n, compare APRs.
• Total cost: M × n = total repaid; subtract P to get total interest.
• Flexibility: Review prepayment rules—can you repay early without penalties?
• Risk fit: Pick an LTV and buffer you can maintain through volatility.
FAQ
Q: Does compounding change the formula?
A: For standard fixed-payment loans quoted with APR, use r = APR ÷ 12 and the amortization formula above. If a product uses a different compounding convention, follow the platform’s stated method.
Q: How do fees affect my monthly payment?
A: If paid upfront, M doesn’t change. If financed, fees increase P, which raises M slightly.
Q: What if my collateral drops in value?
A: Your monthly payment M stays the same, but your LTV rises. Add collateral or repay part of the loan to restore a safe buffer.
Q: Is a shorter term always better?
A: Shorter terms cost less interest overall but raise M. Choose a term balancing affordability and total cost.
Ready to run your numbers? Check rates and see your projected monthly payment before you borrow: OmniLender
