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 interest. This is the standard formula used for most fixed-rate consumer loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (loan term in months)
• \( PMT \) — Fixed 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 comparing loan offers. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Does this work for credit cards or adjustable-rate loans?
A: No, this formula is for fixed-rate installment loans. Credit cards and adjustable-rate loans use different calculations.

Q2: 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 interest.

Q3: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include insurance, taxes, or fees depending on the loan type.

Q4: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Actual lender payments may vary slightly due to rounding methods.

Q5: Can I use this for mortgage calculations?
A: Yes, the same formula applies to mortgages, though mortgages often have additional components like escrow.