1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified period, including both principal and interest.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

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 different loan options. It's essential for financial planning when taking mortgages, car loans, or personal loans.

4. Using the Calculator

Tips: Enter the principal amount in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and number of payment periods in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly rate?
A: Divide the annual percentage rate (APR) by 12. For example, 6% APR becomes 0.06/12 = 0.005 monthly rate.

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

Q3: What's the difference between PMT and P+I?
A: PMT is the fixed monthly payment that includes both principal and interest. The principal and interest portions vary 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 credit card payments?
A: This formula assumes fixed payments. Credit cards typically have minimum payments that change as balance changes.