1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including interest. It's commonly used for car loans, mortgages, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of payments (loan term in months)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Payment Calculation

Details: Knowing your exact monthly payment helps with budgeting and comparing different loan offers. It also shows how much interest you'll pay over the life of the loan.

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate (APR), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest.

Q2: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include insurance, taxes, or fees.

Q3: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. For variable-rate loans, results may change over time.

Q4: What's a good interest rate for a car loan?
A: Rates vary by credit score, loan term, and market conditions. As of 2023, rates typically range from 3% to 10% for new cars.

Q5: Can I calculate total interest paid?
A: Yes, multiply the monthly payment by the number of payments, then subtract the principal amount.