1. What is the Personal Loan Payment Formula?

The Personal Loan Payment Formula (PMT) calculates the fixed monthly payment required to repay a loan over a specified term, including interest. It's widely used in financial planning and loan amortization.

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 years × 12)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula accounts for compound interest over the loan term, calculating a fixed payment that covers both principal and interest each month.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and assessing affordability before committing to a loan.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this formula work for all types of loans?
A: This formula works for fixed-rate installment loans (personal loans, auto loans, mortgages). It doesn't apply to credit cards or variable-rate loans.

Q2: Why is my total payment higher than the loan amount?
A: The difference represents the interest you pay over the life of the loan. Shorter terms or lower rates reduce total interest.

Q3: How does changing the term affect my payment?
A: Longer terms reduce monthly payments but increase total interest. Shorter terms increase payments but reduce total interest.

Q4: Are there other costs not included in this calculation?
A: This calculates principal and interest only. Some loans may have origination fees, insurance, or other costs not reflected here.

Q5: Can I use this for mortgage calculations?
A: Yes, the same formula applies, though mortgages often include additional costs like taxes and insurance in the payment.