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 both principal and interest. This is known as the amortizing loan formula.

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)
• \( n \) — Total number of payments (loan term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal.

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 loan amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this work for all types of loans?
A: This formula works for fixed-rate installment loans (mortgages, auto loans, personal loans). It doesn't apply to credit cards or adjustable-rate loans.

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 interest.

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

Q4: Can I calculate payments with extra payments?
A: This calculator shows standard payments. Extra payments would require a more complex amortization schedule.

Q5: Why does my actual payment differ slightly?
A: Lenders may round payments or include fees/insurance. Always verify with your lender's official documents.