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Loan Payment Formula:
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The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest components. This is known as the amortizing loan payment formula.
The calculator uses the loan payment formula:
Where:
Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest over the term.
Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan offers and choose the most suitable option for your financial situation.
Tips: Enter the principal amount in USD, annual interest rate in percentage, and loan term in months. All values must be positive numbers.
Q1: What's the difference between principal and interest?
A: Principal is the original loan amount, while interest is the cost of borrowing that money. Early payments consist mostly of interest, while later payments pay more principal.
Q2: How does loan term affect payments?
A: Longer terms result in smaller monthly payments but higher total interest costs. Shorter terms mean higher payments but less interest overall.
Q3: What's a typical interest rate for personal loans?
A: Rates vary by creditworthiness, but typically range from 5% to 36% APR. Excellent credit may qualify for rates under 10%.
Q4: Are there other loan payment structures?
A: Yes, some loans have interest-only periods or balloon payments, but this calculator assumes fully amortizing fixed payments.
Q5: Does this include taxes and insurance?
A: No, this calculates only the principal and interest payment. Some loans (like mortgages) may require escrow payments for taxes and insurance.