1. What is the Personal Loan Amortization Formula?

The personal loan amortization formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in years × 12)
• \( PMT \) — Fixed monthly payment amount (USD)

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

3. Importance of Loan Amortization

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows how much interest you'll pay over the life of the loan.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes fees and other loan costs. This calculator uses the interest rate.

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: Are there other loan payment structures?
A: Some loans have variable rates or interest-only periods, but this calculator assumes fixed-rate, fully amortizing loans.

Q4: Why does my actual payment differ slightly?
A: Lenders may round payments or include fees not accounted for in this basic calculation.

Q5: Can I use this for mortgage calculations?
A: Yes, the formula works for any fixed-rate amortizing loan, including mortgages.