1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. This is also known as the PMT formula in financial mathematics.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (term in years × 12)

Explanation: The formula accounts for both principal repayment and interest charges, with interest being front-loaded in the payment schedule.

3. Importance of Loan Calculation

Details: Understanding your loan payment helps with budgeting, comparing loan offers, and making informed financial decisions about borrowing.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), and loan term in years. 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 the interest rate and other loan fees, giving a more complete picture of borrowing costs.

Q2: How can I pay less interest overall?
A: You can pay less interest by choosing a shorter loan term, making extra payments, or securing a lower interest rate.

Q3: Why are early payments mostly interest?
A: With amortizing loans, interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q4: What's an amortization schedule?
A: It's a table showing each payment's allocation between principal and interest over the life of the loan.

Q5: Does this work for all types of loans?
A: This formula works for standard fixed-rate amortizing loans. Interest-only or adjustable-rate loans require different calculations.