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 PMT (payment) formula.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (term in years × 12)
• \( PMT \) — Fixed monthly payment (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 over the term.

3. Importance of Amortization

Details: An amortization schedule shows how each payment is split between principal and interest, and how the loan balance decreases over time. Early payments are mostly interest, while later payments apply more to principal.

4. Using the Calculator

Tips: Enter the principal 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, total interest, and an amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does extra principal payment affect the 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, giving a more complete cost picture. This calculator uses the interest rate.

Q3: Why are early payments mostly interest?
A: Interest is calculated on the current balance, which is highest at the start of the loan.

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

Q5: Can this calculator handle variable rates?
A: No, this calculator assumes a fixed interest rate for the entire loan term.