1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term. This formula accounts for both principal and interest components of the loan.

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)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula calculates the fixed payment needed to fully amortize the loan over its term, with each payment covering both interest and principal.

3. Understanding Loan Repayments

Details: Each payment consists of both interest (calculated on the remaining balance) and principal. Early payments are mostly interest, while later payments are mostly principal.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does the interest rate affect my payment?
A: Higher interest rates increase your monthly payment. A 1% rate increase can significantly raise your payment amount over the loan term.

Q2: What's the benefit of a shorter loan term?
A: Shorter terms mean higher monthly payments but less total interest paid over the life of the loan.

Q3: Are there other costs not included in this calculation?
A: This calculates principal and interest only. Your actual payment may include insurance, fees, or other charges.

Q4: How can I pay less interest overall?
A: Make extra principal payments when possible, which reduces the total interest paid and may shorten your loan term.

Q5: Does this work for all types of loans?
A: This formula works for standard fixed-rate amortizing loans. It doesn't apply to interest-only loans or adjustable-rate mortgages.