1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including interest. It's commonly used for auto loans, mortgages, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for both principal repayment and interest charges, with payments structured so the loan is fully repaid by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows how much interest you'll pay over the life of the loan.

4. Using the Calculator

Tips: Enter the loan amount in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert APR to monthly rate?
A: Divide the annual percentage rate (APR) by 12. For example, 6% APR = 0.06/12 = 0.005 monthly rate.

Q2: Why does my actual payment differ slightly?
A: Lenders may include fees or use slightly different rounding methods. This calculation provides an estimate.

Q3: How can I reduce my monthly payment?
A: You can reduce payments by extending the loan term, making a larger down payment, or securing a lower interest rate.

Q4: What's the difference between simple and amortized loans?
A: This calculator is for amortized loans where payments include both principal and interest. Simple loans calculate interest only on the original principal.

Q5: How much interest will I pay over the loan term?
A: Total interest = (Monthly Payment × Number of Payments) - Principal Amount.