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 (payment) 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)
• \( n \) — Number of monthly payments (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. The repayment schedule shows how much goes toward principal vs. interest each month.

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. The calculator will show your monthly payment and full repayment schedule.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: This is due to amortization - with more principal outstanding early on, more interest accrues. As principal decreases, more payment goes toward principal.

Q2: How can I pay less interest overall?
A: Make extra principal payments when possible, 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, giving a more complete cost picture.

Q4: Are there loans with different payment structures?
A: Yes, some loans have interest-only periods or balloon payments, but this calculator assumes standard amortizing loans.

Q5: How accurate is this calculator?
A: It provides standard amortization results, but actual loan terms may vary slightly based on lender policies.