1. What is an Installment Loan?

An installment loan is a type of loan where you borrow a fixed amount of money and repay it over time through regular, fixed payments (installments). Common examples include mortgages, auto loans, and personal loans.

2. How Does the Calculator Work?

The calculator uses the standard installment loan payment formula:

Where:

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

Explanation: This formula accounts for both principal repayment and interest charges, spreading the payments equally over the loan term.

3. Importance of Loan Payment Calculation

Details: Calculating your exact monthly payment helps with budgeting and financial planning. It allows you to compare different loan offers and understand the total cost of borrowing.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing the principal, while APR (Annual Percentage Rate) includes both interest and other loan fees.

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: Are there other types of loan payments?
A: Yes, some loans use interest-only payments or balloon payments, but this calculator assumes fully amortized installment loans.

Q4: What if I make extra payments?
A: Extra payments reduce the principal faster, potentially saving interest and shortening the loan term.

Q5: Does this work for credit cards?
A: No, credit cards typically use revolving credit with minimum payments based on your balance.