Unless the reader is among the very fortunate few who can always pay
cash for all purchases, you may some day apply for a loan from a bank or
other financial institution. Loans are always made under the assumptions of
a prevailing interest rate (with compounding), an amount to be borrowed,
and the lifespan of the loan, i.e. the time the borrower has to repay the
loan. Usually portions of the loan must be repaid at regular intervals (for
example, monthly). Now we turn our attention to the question of using the
amount borrowed, the length of the loan, and the interest rate to calculate
the loan payment.