1. What is the PMT Formula?

The PMT (Payment) formula calculates the fixed periodic payment required to pay off a loan over a specified term, including both principal and interest. It's widely used in personal loan calculations.

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)
• \( n \) — Number of monthly payments (loan term in months)

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

3. Importance of Loan Calculation

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

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does the monthly payment seem high?
A: The payment includes both principal and interest. Higher interest rates or shorter terms result in higher monthly payments.

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 interest.

Q3: What's included in the monthly payment?
A: This calculation includes principal and interest only. Real loans may include insurance, taxes, or fees.

Q4: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate loans. Variable-rate loans or those with fees may differ.

Q5: Can I use this for other types of loans?
A: Yes, it works for any fixed-rate installment loan (mortgages, auto loans, etc.) when you know the principal, rate, and term.