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, including interest. It's commonly used for personal loans taken to consolidate credit card debt.

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)
• \( n \) — 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: Calculating monthly payments helps borrowers understand the true cost of debt consolidation loans and compare different loan offers effectively.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (not APR), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does this compare to credit card minimum payments?
A: Personal loan payments are typically higher than credit card minimums but pay off debt faster with less total interest.

Q2: What's the difference between interest rate and APR?
A: APR includes fees while interest rate doesn't. For accurate calculations, use the actual interest rate charged on the principal.

Q3: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but increase total interest.

Q4: Are there prepayment penalties?
A: Some loans charge fees for early payoff. Check your loan terms as this calculator assumes no prepayment penalties.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Variable-rate loans would require more complex calculations.