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

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for both principal repayment and interest charges over the life of the loan, resulting in equal monthly payments.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. The calculation shows the true cost of borrowing, including total interest paid.

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 interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes interest plus other loan fees, representing the total annual cost.

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: Why is my payment mostly interest at first?
A: This is normal in amortizing loans - early payments cover more interest as the outstanding balance is highest at the start.

Q4: Can I calculate payments for adjustable-rate loans?
A: This calculator is for fixed-rate loans only. ARM payments would change when the rate adjusts.

Q5: How can I pay less interest overall?
A: Make extra principal payments when possible, choose shorter terms, or negotiate a lower interest rate.