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 (72 months in this case) with a fixed interest rate. It accounts for both principal and interest payments.

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)
• 72 — Fixed number of monthly payments
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula calculates the fixed payment that covers both interest and principal over the 72-month term, with interest being front-loaded in the payment schedule.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing through the total interest paid over the loan term.

4. Using the Calculator

Tips: Enter the principal amount in USD and the annual interest rate as a percentage. The calculator assumes a fixed 72-month (6-year) repayment term.

5. Frequently Asked Questions (FAQ)

Q1: Why use 72 months as the term?
A: 72 months is a common personal loan term that balances affordable monthly payments with reasonable total interest costs.

Q2: Does this include loan fees?
A: No, this calculates principal and interest only. Origination fees or other charges would increase the total cost.

Q3: How does interest rate affect payments?
A: Higher rates significantly increase both monthly payments and total interest. A 1% rate difference can mean hundreds in extra interest over 72 months.

Q4: Can I pay off the loan early?
A: Most loans allow early repayment, which saves on interest. Check your loan terms for any prepayment penalties.

Q5: Are there alternatives to 72-month loans?
A: Yes, shorter terms (36-60 months) have higher payments but lower total interest, while longer terms reduce payments but increase total cost.