1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed periodic payment required to pay off a loan over a specified number of periods at a given interest rate. It's commonly used for mortgages, car loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( PMT \) — Periodic payment amount
• \( P \) — Principal loan amount
• \( r \) — Periodic interest rate (decimal)
• \( n \) — Total number of payments

Explanation: The formula accounts for both principal repayment and interest charges over the life of the loan.

3. Importance of Loan Payment Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitments and compare different loan options.

4. Using the Calculator

Tips: Enter principal in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and number of payment periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between annual and periodic rate?
A: For monthly payments, divide the annual rate by 12. The calculator expects the periodic rate matching your payment frequency.

Q2: How does loan term affect payments?
A: Longer terms reduce periodic payments but increase total interest paid over the life of the loan.

Q3: Are there different types of loan calculations?
A: Yes, this is for standard amortizing loans. Interest-only loans or balloon payments require different calculations.

Q4: Does this account for fees or insurance?
A: No, this calculates principal and interest only. Actual payments may include additional costs.

Q5: How accurate is this calculator?
A: It provides mathematically precise results for the given inputs, assuming fixed interest rates and regular payments.