Loan Amortization Calculator Monthly Payment

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment (PMT):

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1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing and principal portion increasing over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

$ P $ — Principal loan amount ($)
$ r $ — Monthly interest rate (annual rate ÷ 12)
$ n $ — Total number of payments (loan term in years × 12)
$ PMT $ — Monthly payment amount

Explanation: The formula calculates the fixed monthly payment required to fully amortize a loan over its term, accounting for compound interest.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and making informed financial decisions about large purchases like homes or cars.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For mortgages, you'll need to add property taxes, insurance, and possibly PMI separately.

Q2: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing, while APR includes fees and other loan costs, giving a more complete picture of the loan's cost.

Q3: How does extra payment affect my loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.

Q4: What's an amortization schedule?
A: A table showing each payment's breakdown between principal and interest, and the remaining balance after each payment.

Q5: Why does my payment stay the same but interest/principal changes?
A: This is how amortization works - early payments are mostly interest, while later payments are mostly principal, but the total payment remains constant.