[harmon46]

I am going to lend some money to a friend and we agreed that the interest rate charged per month would be whatever the current "Prime Rate" is at the first of the month. We have not set a monthly payment schedule nor an endpoint for the loan to be paid back. I am open to him paying me the interest for the month plus whatever he can pay down on the principle. How do I figure the interest per month so we know what he has to pay me in interest.
Ex. I loan him 12,000 dollars. The Prime Interest the first of June is say 2% how do I compute the interest charge. Then if he pays me 100 dollars in addition to the interest towards the principle, the interest paid July first would be on a balance of 11,900. Looking for some help in this. I did something similar 20 years ago when I brought some property for someone. But I can't remember how I figured the interest each month (that loan was based on the prime too).

[LuckyMe777]

It's actually pretty simple - today's prime rate is 3.25%

$12,000 x 3.25% is the annual interest.

The annual interest divided by 12 is the monthly interest. Or divide the annual interest by 365 and you get the daily interest.

So his first few payments would look like this:

$12,000 x 3.25% / 12 = $32.50 interest

$100 payment breaks down to $32.50 in interest and $67.50 in principal. Loan balance is $11,932.50

2nd month:

$11,932.50 x 3.25% = $387.81/12 = $32.32

$100 payment, $32.32 is interest and $67.68 is principal. New loan balance is $11,864.82

3rd month and prime changes to 3.5%:

$11,864.82 x 3.5% = $385.59/12 = $32.13

$32.13 is interest and $67.87 is principal and new loan balance is $11,796.45

this can be done on an excel spreadsheet.