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 PMT (payment) formula for amortizing loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that covers both principal and interest each month.

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting, comparing loan offers, and making informed financial decisions about borrowing.

4. Using the Calculator

Tips: Enter the principal amount, 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 included in the monthly payment?
A: The payment includes both principal and interest. It doesn't include taxes, insurance, or other fees that may be part of a complete mortgage payment.

Q2: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest.

Q3: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal. APR (Annual Percentage Rate) includes interest plus other loan fees, giving a more complete cost picture.

Q4: Can I pay off my loan early?
A: Most loans allow early payoff, but some have prepayment penalties. Check your loan terms.

Q5: How can I reduce my total interest paid?
A: Make extra principal payments when possible, choose a shorter loan term, or refinance to a lower interest rate when available.