1. What is the Personal Loan Payment Formula?

The personal loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term. This formula is widely used by financial institutions in Australia, including those recommended by MoneySmart.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (AUD)
• \( r \) — Monthly interest rate (annual rate divided by 12)
• \( n \) — Total number of payments (loan term in years × 12)
• \( PMT \) — Monthly payment amount (AUD)

Explanation: The formula accounts for compound interest and spreads payments evenly over the loan term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. MoneySmart recommends calculating payments before committing to any loan.

4. Using the Calculator

Tips: Enter the loan amount in AUD, 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: What's a typical interest rate for personal loans in Australia?
A: As of 2023, rates typically range from 6% to 20% depending on credit score, loan amount, and term.

Q2: Does this calculator account for loan fees?
A: No, it calculates principal and interest only. MoneySmart recommends including fees in your total cost comparison.

Q3: 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 cost.

Q4: What's the difference between fixed and variable rate loans?
A: Fixed rates stay the same for the loan term, while variable rates can change. This calculator assumes a fixed rate.

Q5: Where can I find MoneySmart's loan advice?
A: Visit moneysmart.gov.au for official guidance on personal loans and financial management.