How to Calculate an Annual Payment on a Loan

A loan is a fairly straightforward type of debt instrument. Loans are issued primarily by banks, and consist of an initial payment to the debtor, followed by a series of payments back to the creditor. These payments, which are often made in the same amount for convenience's sake, service both the accumulated interest on the loan and the principal amount. Determining the amount of this even payment makes use of an area of finance called discounted cash flow modeling. Learning how to calculate an annual payment on a loan requires a basic understanding of the underlying principles.