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 in financial mathematics.

2. How Does the Calculator Work?

The calculator uses the standard 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, 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 financial planning. It allows you to compare different loan options and terms to find the most suitable financing.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. Actual mortgage payments may include property taxes and insurance (PITI).

Q2: 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 interest.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing the principal.

Q4: Can I use this for car loans?
A: Yes, this formula works for any fixed-rate installment loan including auto loans, personal loans, and mortgages.

Q5: How accurate is this calculator?
A: It provides exact calculations for fixed-rate loans. Variable-rate loans would require more complex calculations.