1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. For a 5-year personal loan, it determines the monthly payment based on principal amount and interest rate.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of payments (60 for 5 years)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula accounts for both principal repayment and interest charges, with more of each payment going toward interest early in the loan term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

Tips: Enter the principal amount in USD and annual interest rate as a percentage. The calculator assumes a 5-year (60 month) term.

5. Frequently Asked Questions (FAQ)

Q1: Does this include fees or insurance?
A: No, this calculates only principal and interest. Additional fees or insurance would increase your total payment.

Q2: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the cost of borrowing the principal.

Q3: Can I pay off the loan early?
A: Most loans allow early repayment, but some may have prepayment penalties - check your loan terms.

Q4: Why does most of my early payment go to interest?
A: This is how amortization works - early payments have more interest because the outstanding balance is higher.

Q5: How can I reduce total interest paid?
A: Make larger payments when possible, choose a shorter loan term, or negotiate a lower interest rate.