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. This is known as the PMT formula in financial mathematics.

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)
• \( n \) — Total number of payments (months)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula accounts for the time value of money, calculating equal payments that cover both interest and principal reduction over the loan term.

3. Importance of Amortization Schedule

Details: An amortization schedule shows the breakdown of each payment into principal and interest components, helping borrowers understand how much they're paying in interest over time and how quickly they're building equity.

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 your monthly payment and generate a complete amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does early in the loan term have higher interest payments?
A: Interest is calculated on the remaining balance, which is highest at the beginning of the loan term.

Q2: How can I pay less interest overall?
A: Make additional principal payments to reduce the loan balance faster and shorten the loan term.

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

Q4: Does this work for mortgages?
A: Yes, the same formula applies to mortgages, though mortgages often have additional costs like taxes and insurance.

Q5: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid over the life of the loan.