1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan with interest over a specified term. It's commonly used for car finance loans, mortgages, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both principal and interest.

3. Importance of Loan Payment Calculation

Details: Calculating accurate monthly payments helps borrowers understand their financial commitments, compare loan offers, and budget effectively for car purchases.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in months. 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, providing a more complete cost picture. This calculator uses the interest rate.

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: Are there other costs not included?
A: This calculates principal and interest only. Real loans may include taxes, fees, or insurance in payments.

Q4: What's amortization?
A: The process of paying off debt with regular payments over time, where early payments are mostly interest and later payments mostly principal.

Q5: Can I calculate extra payments?
A: This calculator shows fixed payments. Extra payments would require a different amortization schedule.