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 the standard formula used for fixed-rate mortgages, auto loans, and personal loans.

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)
• \( n \) — Total number of payments (loan term in years × 12)
• \( PMT \) — 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. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan offers and choose the most suitable option.

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. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this work for credit card payments?
A: No, this formula is for fixed-rate installment loans. Credit cards typically use different calculations with variable rates.

Q2: 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.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and certain fees, giving a more complete cost picture. This calculator uses interest rate.

Q4: Are there loans this doesn't work for?
A: This doesn't apply to interest-only loans, adjustable-rate mortgages, or balloon payment loans.

Q5: Why does my actual payment differ slightly?
A: Lenders may include fees, insurance, or use slightly different rounding methods in their calculations.