1. What is the Personal Loan Payment Formula?

The Personal Loan Payment Formula (PMT) calculates the fixed monthly payment required to repay a loan over a specified period, including interest. It's used for personal loans, auto loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that covers both principal and interest.

3. Importance of PMT Calculation

Details: Calculating the monthly payment helps borrowers understand their repayment obligations, compare loan offers, and budget effectively.

4. Using the Calculator

Tips: Enter the loan amount in dollars, monthly interest rate as a decimal (e.g., 0.01 for 1%), and number of monthly payments. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly rate?
A: Divide the annual percentage rate (APR) by 12 (months) and by 100 (to convert from percentage to decimal).

Q2: What's included in the monthly payment?
A: The payment includes both principal and interest. Additional costs like insurance or fees may not be included.

Q3: 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.

Q4: Are there different types of loan calculations?
A: This is for fixed-rate loans. Adjustable-rate loans have more complex calculations as rates change.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans, but actual lender payments may vary slightly due to rounding methods.