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Loan Payment Formula:
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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 the standard formula used for most fixed-rate personal loans.
The calculator uses the loan payment formula:
Where:
Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal reduction.
Details: Accurate payment calculation helps borrowers understand their financial commitment, compare loan offers, and budget effectively for repayment.
Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in months. All values must be positive numbers.
Q1: Does this calculator account for loan fees?
A: No, this calculates only the principal and interest payment. For complete cost, add any origination fees or other charges to the principal.
Q2: What's a typical interest rate for personal loans?
A: Rates vary by credit score - excellent credit (720+) may get 5-10%, good credit (680-719) 10-15%, and fair credit (below 680) 15-36%.
Q3: 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 cost.
Q4: Are results accurate for all loan types?
A: This works best for fixed-rate installment loans. Adjustable-rate loans or credit cards with variable rates require different calculations.
Q5: Can I use this for mortgage or auto loans?
A: Yes, the same formula applies, though mortgages often include taxes/insurance in payments which aren't accounted for here.