1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term. This is the standard formula used for amortizing loans including student loans, mortgages, and auto loans.

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 accounts for both principal repayment and interest charges, with payments structured so the loan is paid off exactly by the end of the term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan options and understand the total cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include loan fees?
A: No, this calculates only the principal and interest payments. Additional fees would increase your total payment amount.

Q2: How does extra payment affect my loan?
A: Extra payments reduce principal faster, decreasing total interest paid and potentially shortening the loan term.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the cost of borrowing the principal.

Q4: Are student loan payments tax deductible?
A: In some countries, student loan interest may be tax deductible. Consult a tax professional for your situation.

Q5: Can I change my payment plan later?
A: Many student loans offer different repayment plans, but terms vary by lender and loan type.