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. This is known as the amortizing loan formula.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment and total loan cost helps with budgeting and financial planning. The repayment schedule shows how each payment is split between principal and interest.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in years or months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the original loan amount. Interest is the cost of borrowing, calculated as a percentage of the remaining principal.

Q2: Why does early payment go more toward interest?
A: With amortizing loans, interest is calculated on the current balance, so early payments when the balance is highest include more interest.

Q3: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter loan term, or secure a lower interest rate.

Q4: What's an amortization schedule?
A: A table showing each payment's breakdown between principal and interest, and the remaining balance after each payment.

Q5: Does this work for all loan types?
A: This calculator is for fixed-rate, fully amortizing loans. It doesn't apply to interest-only loans, adjustable-rate loans, or balloon payments.