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. It accounts for the principal amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both principal and interest.

3. Importance of Loan Payment Calculation

Details: Accurate payment calculation is crucial for budgeting, loan comparison, and financial planning. It helps borrowers understand their long-term commitments.

4. Using the Calculator

Tips: Enter principal in dollars, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and number of months. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12 (months) and by 100 (to convert from percentage to decimal).

Q2: Does this work for any type of loan?
A: Yes, for standard amortizing loans (mortgages, auto loans, personal loans). Doesn't apply to interest-only or balloon payment loans.

Q3: Why does my payment stay the same?
A: This calculates fixed-rate loans where the payment amount remains constant, though the principal/interest ratio changes over time.

Q4: How accurate is this calculation?
A: Very accurate for standard loans. Actual payments may vary slightly due to rounding or additional fees.

Q5: Can I calculate total interest paid?
A: Yes, multiply the monthly payment by number of payments, then subtract the principal amount.