1. What is the PMT Formula?

The PMT formula calculates the fixed monthly payment required to pay off a loan over a specified term. It's commonly used for personal loans, mortgages, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

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

Explanation: The formula accounts for both principal repayment and interest charges over the loan term.

3. Importance of Payment Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitments, compare loan offers, and budget effectively.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why use this formula for personal loans?
A: This is the standard formula used by most lenders to calculate fixed monthly payments for amortizing loans.

Q2: Does this include any fees?
A: No, this calculates only the principal and interest payment. Additional fees would increase the total cost.

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's a good interest rate for personal loans?
A: Rates vary by creditworthiness, but as of 2023, good credit borrowers might get rates between 6-12%.

Q5: Can I use this for credit card payments?
A: No, credit cards typically use different calculation methods with variable payments.