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.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

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

3. Understanding Your Payment Schedule

Details: Early payments consist mostly of interest, with the principal portion increasing over time. This amortization schedule shows exactly how each payment is allocated.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. The calculator will show your monthly payment and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does extra principal payment affect my loan?
A: Extra payments reduce the principal faster, decreasing total interest paid and potentially shortening the loan term.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, representing the true cost of borrowing. This calculator uses the interest rate.

Q3: Why are early payments mostly interest?
A: With a large principal balance early on, more interest accrues each month. As principal decreases, less interest accrues.

Q4: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms lower monthly payments but increase total interest.

Q5: Can I use this for different payment frequencies?
A: This calculator assumes monthly payments. For biweekly or other frequencies, adjustments to the rate and term would be needed.