1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its 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 divided by 12)
• \( n \) — Number of monthly payments (term in years × 12)
• \( PMT \) — Fixed monthly payment amount (USD)

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

3. Importance of Amortization

Details: An amortization schedule shows how each payment is split between principal and interest, helping borrowers understand how their loan balance decreases over time.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does early payment go mostly toward interest?
A: Early in the loan, the outstanding balance is highest, so interest charges are largest. As principal is paid down, more of each payment goes toward principal.

Q2: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter loan term, or secure a lower interest rate.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and any loan fees, providing a more complete cost picture.

Q4: Are there loans that don't amortize?
A: Yes, interest-only loans and balloon loans have different payment structures.

Q5: How does refinancing affect amortization?
A: Refinancing restarts the amortization process, typically with a new term and rate.