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 amortizing loan formula.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest over the term.

3. Importance of Loan Calculation

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, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the amount you borrowed. Interest is the cost of borrowing that money, calculated as a percentage of the principal.

Q2: Why does early payment go more toward interest?
A: With amortizing loans, interest is calculated on the current balance, which is highest at the beginning of the loan term.

Q3: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter loan term, or secure a lower interest rate.

Q4: What's an amortization schedule?
A: A table showing each payment's breakdown between principal and interest, and the remaining balance.

Q5: Does this work for all types of loans?
A: This formula works for fixed-rate amortizing loans. Interest-only loans or adjustable-rate mortgages require different calculations.