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.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

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

3. Importance of Loan Amortization

Details: Understanding loan amortization helps borrowers see how much of each payment goes toward principal vs. interest, the total interest cost, and how extra payments can shorten the loan term.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in either years or months. The calculator will show the monthly payment and generate a full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does interest rate affect my payment?
A: Higher rates increase both your monthly payment and total interest paid. Even small rate differences can significantly impact total loan cost.

Q2: What's the benefit of a shorter loan term?
A: Shorter terms mean higher monthly payments but less total interest paid over the life of the loan.

Q3: How can I pay less interest?
A: Make extra principal payments when possible, which reduces the outstanding balance and total interest.

Q4: Why does early payment go mostly to interest?
A: With amortizing loans, interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q5: Are there loans with different payment structures?
A: Yes, some loans have interest-only periods or balloon payments, but this calculator assumes standard amortizing loans.