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Bankrate Amortized Loan Calculator

Amortized Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

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1. What is the Amortized Loan Payment Formula?

The amortized loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest. This formula is widely used for mortgages, car loans, and personal loans.

2. How Does the Calculator Work?

The calculator uses the amortized loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

Explanation: The formula accounts for the time value of money, calculating equal payments that cover both interest and principal over the loan term.

3. Importance of Loan Payment Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitments, compare loan offers, and budget effectively for major purchases.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between amortized and interest-only loans?
A: Amortized loans pay both principal and interest with each payment, while interest-only loans only pay interest during the initial period.

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

Q3: What's included in the monthly payment?
A: This calculator shows principal and interest only. Actual payments may include taxes, insurance, and fees.

Q4: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Variable-rate loans require more complex calculations.

Q5: Can I calculate payments for extra payments?
A: This calculator shows standard payments. Additional payments would require an amortization schedule calculator.

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