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. This is known as the PMT (payment) formula in financial mathematics.

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)
• \( n \) — Number of monthly payments (loan term in months)
• \( PMT \) — 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 reduction.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: APR includes both interest rate and any additional fees, providing a more complete picture of loan cost.

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 gradually paying off a loan through regular payments that cover both principal and interest.

Q4: Are there different types of loans?
A: Yes, this calculator works for fixed-rate loans. Adjustable-rate loans have payments that can change over time.

Q5: How can I reduce total interest paid?
A: Make larger payments when possible, choose shorter loan terms, or refinance at lower interest rates.