f this is a simple interest loan, you would begin by multiplying .07 times 1/12. The result is the monthly interest factor. Multiply this amount times $40,000 for the interest on the first installment. In this case, the first month's interest would be around $233. Subtract this number from $500, the amount remaining is the principle payment, or in this case $267. The beginning principle is reduced by this amount. For the next's month's payment, repeat the process, using the new principle amount as the starting point.