Calculate Repayments On Personal Loan

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment (PMT):

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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, including both principal and interest. This is also known as the amortization formula.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

\( P \) — Principal loan amount (USD)
\( r \) — Monthly interest rate (annual rate ÷ 12, in decimal)
\( n \) — Number of monthly 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 principal and interest.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan options and terms to find the most suitable one for your financial situation.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25 for 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 the principal and interest portion of the payment. Your actual payment may be higher if it includes escrow for taxes and insurance.

Q2: What happens if I make extra payments?
A: Extra payments reduce the principal faster, potentially saving you interest and allowing you to pay off the loan sooner.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms have lower monthly payments but more total interest.

Q4: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing the principal, while APR includes additional fees and costs, giving a more complete picture of loan cost.

Q5: Can I use this for other types of loans?
A: This formula works for any fixed-rate, fully amortizing loan including mortgages, auto loans, and personal loans.