1. What is the Personal Loan Payment Formula?

The personal loan payment formula calculates the fixed monthly payment required to repay a loan over a specified period, including interest. It's based on the loan amount, interest rate, and loan term.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of payments (loan term in months)

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

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It shows how much you'll pay each month and the total interest over the loan term.

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 numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12. For example, 12% APR becomes 0.01 (1%) monthly rate.

Q2: Does this include fees?
A: No, this calculates principal and interest only. Loan origination fees or other charges would increase your effective payment.

Q3: What's the difference between simple and compound interest?
A: Most loans use compound interest where unpaid interest gets added to the principal, increasing future interest calculations.

Q4: 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.

Q5: Can I use this for other types of loans?
A: Yes, this formula works for any fixed-rate installment loan (mortgages, auto loans, etc.) with equal monthly payments.