1. What is Bret Whissel's Loan Amortization Formula?

The Bret Whissel loan amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term. It accounts for both principal and interest components of the loan payment.

2. How Does the Calculator Work?

The calculator uses the loan amortization formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12 ÷ 100)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount ($)

Explanation: The formula calculates the fixed payment that will pay off the loan exactly over the term, accounting for compound interest.

3. Importance of Loan Amortization

Details: Understanding loan amortization helps borrowers see how much of each payment goes toward principal vs. interest, and how extra payments can reduce total interest paid.

4. Using the Calculator

Tips: Enter principal amount in dollars, 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 interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes interest plus other loan fees, representing the true cost of the loan.

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 interest.

Q3: What is an amortization schedule?
A: A table showing each payment's breakdown between principal and interest, and the remaining balance after each payment.

Q4: How do extra payments affect the loan?
A: Extra payments reduce principal faster, decreasing total interest and potentially shortening the loan term.

Q5: Are there loans this doesn't apply to?
A: This formula works for fixed-rate loans. Adjustable-rate loans or interest-only loans require different calculations.