1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest. It's commonly used for mortgages, car loans, and personal 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)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing through total interest calculations.

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 the difference between APR and interest rate?
A: APR includes both interest rate and any additional fees, giving a more complete picture of the loan's cost.

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 cost.

Q3: What's amortization?
A: The process of paying off debt through regular payments over time. Early payments are mostly interest; later payments apply more to principal.

Q4: Can I pay extra to reduce interest?
A: Yes, additional principal payments reduce the loan balance faster and decrease total interest paid.

Q5: What about variable rate loans?
A: This calculator assumes a fixed rate. Variable rates would require more complex calculations as payments may change.