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. It accounts for the principal amount, interest rate, and loan duration.

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 (loan term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula calculates the fixed payment that covers both principal and interest each month.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan options. It also shows the total cost of borrowing.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the amount borrowed. Interest is the cost of borrowing that amount.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total cost.

Q3: What is amortization?
A: The process of paying off a loan with regular payments that cover both principal and interest.

Q4: Are there other loan payment methods?
A: Some loans have interest-only periods or balloon payments, but this calculator assumes fully amortizing loans.

Q5: Does this work for all types of loans?
A: This works for fixed-rate installment loans (mortgages, auto loans, personal loans). It doesn't work for credit cards or adjustable-rate loans.