Loan Payment Formula:
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The personal loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term (36 months in this case) with a fixed interest rate. This is known as the PMT formula in financial mathematics.
The calculator uses the PMT formula:
Where:
Explanation: The formula accounts for both principal repayment and interest charges, with payments structured so the loan is fully paid off after 36 equal monthly payments.
Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare loan offers and assess affordability before committing to a loan.
Tips: Enter the principal amount in USD and the annual interest rate as a percentage (e.g., 5.25 for 5.25%). The calculator assumes a fixed rate for 36 months.
Q1: Why is my monthly payment higher than expected?
A: Higher payments result from either a larger principal amount, higher interest rate, or shorter loan term. Even small rate changes can significantly impact payments.
Q2: How does the payment change if I pay extra each month?
A: Extra payments reduce principal faster, decreasing total interest and potentially shortening the loan term.
Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and any fees, providing a more complete cost picture. This calculator uses interest rate for simplicity.
Q4: Are there prepayment penalties?
A: Some loans charge for early payoff. Check your loan terms, as this calculator assumes no prepayment penalties.
Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Actual payments may vary if rates adjust or fees apply.