1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. This is known as the PMT (payment) formula for amortizing 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)

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as percentage), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What types of loans use this formula?
A: This formula works for most fixed-rate installment loans including personal loans, auto loans, and mortgages.

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: What's the difference between APR and interest rate?
A: APR includes both interest rate and any loan fees, giving a more complete picture of borrowing costs.

Q4: Can I calculate payments for adjustable-rate loans?
A: This calculator is for fixed-rate loans only. Adjustable-rate loans require more complex calculations.

Q5: How accurate are these calculations?
A: This provides an accurate estimate, but final payments may vary slightly based on lender-specific rounding methods.