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.

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)
• \( n \) — Number of monthly payments
• \( PMT \) — Fixed monthly payment amount (USD)

Explanation: The formula calculates the fixed payment needed to pay off the loan over the specified term, including both principal and interest.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan options and terms.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate in percentage, and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only the principal and interest portion of the payment. Other costs may apply to your actual payment.

Q2: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing, while APR includes additional fees and costs associated with the loan.

Q3: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q4: What if I make extra payments?
A: Extra payments reduce the principal faster, potentially saving interest and shortening the loan term.

Q5: Can this be used for mortgages?
A: While the formula is similar, mortgages often have additional factors like escrow that this calculator doesn't account for.