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 both principal and interest components.

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 (term in years × 12)
• \( PMT \) — Fixed monthly payment (USD)

Explanation: The formula accounts for compound interest and amortizes the loan over the specified term with equal monthly payments.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It shows the true cost of borrowing when interest is included.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: APR includes both interest rate and any fees, providing a more complete cost picture. This calculator uses the interest rate.

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 cost.

Q3: Are results accurate for all loan types?
A: This works for standard fixed-rate loans. Adjustable-rate, interest-only, or balloon loans require different calculations.

Q4: Why is my actual payment slightly different?
A: Lenders may use slightly different methods or include fees. Always verify with your lender.

Q5: Can I use this for mortgage calculations?
A: Yes, but mortgages often include taxes and insurance in payments, which aren't accounted for here.