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. It's based on the principal amount, interest rate, and loan duration.

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 loan term, distributing payments equally while the proportion going toward principal vs. interest changes over time.

3. Importance of Loan 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 principal 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: Why does my payment amount differ from the bank's quote?
A: Banks may include fees or use slightly different calculation methods. Always verify with your lender.

Q2: How can I reduce my total interest paid?
A: You can reduce total interest by choosing a shorter loan term or making additional principal payments when possible.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and fees, giving a more complete picture of loan cost. This calculator uses the interest rate only.

Q4: Does this work for mortgage loans?
A: Yes, the same formula applies to mortgages, though mortgages often have additional costs like insurance and taxes.

Q5: How does changing the loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but increase total interest.