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Loan Payment Formula:
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The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term, including both principal and interest components.
The calculator uses the standard loan payment formula:
Where:
Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest by the end of the term.
Details: Understanding your monthly payment helps with budgeting, loan comparison, and financial planning. It's essential for mortgages, auto loans, personal loans, and other installment credit.
Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 5.25), and loan term in months (e.g., 360 for 30 years). All values must be positive numbers.
Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For complete payment estimates (PITI), add property taxes, insurance, and any PMI separately.
Q2: How does extra payments affect the loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term. This calculator shows only the standard payment.
Q3: What's the difference between APR and interest rate?
A: The interest rate is the base cost of borrowing, while APR includes fees and other loan costs to show the true annual cost.
Q4: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Actual payments may vary slightly due to rounding methods used by lenders.
Q5: Can I use this for credit cards or adjustable-rate loans?
A: No, this is designed for fixed-rate installment loans. Credit cards use different calculations, and ARMs have variable payments.