1. What is the Monthly Payment Formula?

The monthly payment formula calculates the fixed payment amount required to fully repay a loan over its term, including both principal and interest components.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in months)

Explanation: The formula accounts for compound interest over the life of the loan, distributing payments equally across all periods.

3. Importance of Payment Calculation

Details: Accurate payment calculation is crucial for budgeting, loan comparison, and understanding the total cost of borrowing.

4. Using the Calculator

Tips: Enter loan amount in dollars, monthly interest rate as a decimal (e.g., 0.01 for 1%), and number of monthly payments. 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 convert from percentage to decimal (e.g., 12% APR = 0.01 monthly rate).

Q2: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For complete payment (PITI), add property taxes, insurance, and other fees separately.

Q3: What's the difference between PMT and P+I?
A: PMT is the total monthly payment. Principal + Interest (P+I) shows how much goes toward loan balance versus interest each month.

Q4: 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.

Q5: Can I use this for any type of loan?
A: This works for standard amortizing loans (mortgages, auto loans, personal loans). It doesn't apply to interest-only or balloon payment loans.