1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term. It accounts for the principal amount, interest rate, and loan duration to determine consistent payments.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula calculates the fixed payment needed to fully amortize the loan over its term, accounting for both principal and interest.

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting, comparing loan offers, and making informed financial decisions about large purchases.

4. Using the Calculator

Tips: Enter the loan 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: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing, while APR includes both interest and any additional fees, providing a more complete cost picture.

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 cost.

Q3: What about extra payments?
A: Additional payments reduce principal faster, saving interest and potentially shortening the loan term.

Q4: Are there different types of loans?
A: Yes, this calculator works for fixed-rate loans. Adjustable-rate loans have payments that change over time.

Q5: What's amortization?
A: The process of paying off debt through regular payments that cover both principal and interest over time.