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 (decimal)
• \( n \) — Number of monthly payments
• \( PMT \) — Fixed monthly payment (USD)

Explanation: The formula accounts for compound interest over the loan term, calculating equal payments that cover both principal reduction and interest charges.

3. Importance of Rate Comparison

Details: Comparing different interest rates helps borrowers identify the most cost-effective loan option, potentially saving thousands over the loan term.

4. Using the Calculator

Tips: Enter principal amount in USD, loan term in months, and at least two interest rates as decimals (e.g., 0.05 for 5%). All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert APR to monthly rate?
A: Divide the annual percentage rate (APR) by 12 (months). For example, 6% APR = 0.06/12 = 0.005 monthly rate.

Q2: Why compare multiple rates?
A: Small rate differences can significantly impact total repayment amount over time. A 0.25% rate reduction can save substantial money on large/long-term loans.

Q3: What's included in the monthly payment?
A: This calculates principal and interest only. Real payments may include taxes, insurance, or fees depending on loan type.

Q4: 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.

Q5: Can I calculate annual payments?
A: For annual payments, use annual rate and years instead of monthly rate and months in the same formula.