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 is the standard formula used for mortgages, car loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for both principal repayment and interest charges, with more of each payment going toward interest early in the loan term.

3. Importance of Loan Payment Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitments, compare loan offers, and budget effectively.

4. Using the Calculator

Tips: Enter the principal amount in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and number of months. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12 (months) and by 100 (to convert from percentage to decimal).

Q2: Why does my payment stay the same each month?
A: This is an amortizing loan where the payment amount is fixed, but the proportion going to principal vs. interest changes over time.

Q3: How can I pay less interest overall?
A: Make additional principal payments when possible, choose a shorter loan term, or negotiate a lower interest rate.

Q4: Does this work for credit cards?
A: No, credit cards typically use different repayment structures with minimum payments based on your balance.

Q5: What if I want to calculate for a different unknown?
A: There are different calculators for solving for principal, rate, or term when payment is known.