Monthly Repayment Calculator Personal Loan

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Monthly Payment (PMT):

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1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including both principal and interest. This is the standard formula used by banks and financial institutions for amortizing loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

\( P \) — Principal loan amount (USD)
\( r \) — Monthly interest rate (annual rate divided by 12, in decimal form)
\( n \) — Number of monthly payments (loan term in months)
\( PMT \) — Fixed monthly payment amount (USD)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a payment that will completely pay off the loan by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It shows how much of each payment goes toward principal vs. interest.

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 months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For a complete mortgage payment, you would need to add property taxes, insurance, and possibly PMI.

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 interest.

Q3: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing principal. APR includes the interest rate plus other loan fees, representing the total cost of the loan.

Q4: Can I pay extra to reduce the term?
A: Yes, additional principal payments reduce the loan balance faster and can shorten the term, saving interest.

Q5: How accurate is this calculator?
A: This provides standard amortized loan calculations. Actual loan terms may vary slightly based on lender-specific rounding methods.