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. It's based on the time value of money principle.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal.

3. Importance of Loan Payment Calculation

Details: Calculating monthly payments helps borrowers understand their financial commitments, compare loan options, and budget effectively for major purchases.

4. Using the Calculator

Tips: Enter the principal amount in USD, 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: Does this include taxes and insurance?
A: No, this calculates only principal and interest. A complete mortgage payment might include additional amounts for taxes and insurance.

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

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, giving a more complete cost picture. This calculator uses the interest rate.

Q4: Can I use this for different loan types?
A: Yes, it works for mortgages, auto loans, personal loans, and other fixed-rate installment loans.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Variable-rate loans would require more complex calculations.