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 components. It provides a standardized way to compare different loan options.

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, in decimal)
• \( n \) — Number of monthly payments (term in months)
• \( PMT \) — Monthly payment amount (USD)

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

3. Importance of Payment Calculation

Details: Accurate payment calculation helps borrowers understand affordability, compare loan offers, and budget for monthly expenses. It's essential for financial planning.

4. Using the Calculator

Tips: Enter principal in USD, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. Actual payments may include additional costs like property taxes or insurance.

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 cost.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the cost of borrowing principal.

Q4: Can I use this for any type of loan?
A: This works for standard installment loans with fixed rates. It's not suitable for credit cards or adjustable-rate loans.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans, but actual lender payments may vary slightly due to rounding methods.