1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. This formula accounts for both principal and interest payments.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Explanation: The formula calculates the fixed payment that will pay off the loan with interest by the end of the term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing different loan options. 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 years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the amount borrowed, while interest is the cost of borrowing that money.

Q2: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q3: What is amortization?
A: The process of paying off a loan with regular payments that cover both principal and interest.

Q4: Are there other loan types?
A: Yes, interest-only loans have lower initial payments but don't reduce principal until later in the term.

Q5: How can I pay less interest?
A: Make extra principal payments when possible, which reduces the total interest paid over the loan term.