1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest components.

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)
• \( n \) — Total number of payments (months)
• \( PMT \) — Fixed monthly payment amount

Explanation: The formula accounts for the time value of money, calculating equal payments that will pay off the loan plus interest over the specified term.

3. Understanding Amortization

Details: Amortization is the process of spreading out loan payments over time. Early payments consist mostly of interest, while later payments apply more toward principal.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in either years or months. The calculator will show your monthly payment and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does extra principal payment affect my loan?
A: Extra payments reduce principal faster, shortening the loan term and reducing total interest paid.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, giving a more complete cost picture.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms lower monthly payments but increase total interest.

Q4: What types of loans use this formula?
A: This applies to fixed-rate mortgages, auto loans, personal loans, and other installment loans.

Q5: Why does my amortization schedule show more interest early on?
A: Interest is calculated on the outstanding balance, which is highest at the beginning of the loan.