1. What is the Personal Loan Payment Formula?

The personal loan payment formula (PMT) calculates the fixed monthly payment required to repay a loan over a specified term. This formula is used by Credible and other lending platforms to determine loan payments.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

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

Explanation: The formula accounts for both principal and interest payments, with more interest paid earlier in the loan term.

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, and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does interest rate affect my payment?
A: Higher rates increase both monthly payments and total interest paid. Even a 1% difference can significantly impact your total cost.

Q2: What's better - shorter term or lower payment?
A: Shorter terms mean higher payments but less total interest. Choose the shortest term you can comfortably afford.

Q3: Are there fees not included in this calculation?
A: This calculator doesn't account for origination fees, late fees, or prepayment penalties that some lenders charge.

Q4: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate loans. Variable-rate loans would require more complex calculations.

Q5: Can I use this for other types of loans?
A: Yes, this formula works for any fixed-rate installment loan (personal, auto, etc.), though terms may vary.