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.

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
• \( PMT \) — Fixed monthly payment amount

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal reduction.

3. Importance of Loan Amortization

Details: Understanding how your payments are split between principal and interest helps with financial planning and shows the true cost of borrowing.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in months. The calculator will show your monthly payment and generate a complete amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does interest rate affect my payment?
A: Higher rates increase both your monthly payment and total interest paid. Even small rate differences can significantly impact long-term costs.

Q2: What's better - shorter term or lower payment?
A: Shorter terms mean higher payments but less total interest. Choose based on your budget and how quickly you want to be debt-free.

Q3: Can I pay extra to reduce interest?
A: Yes! Additional principal payments reduce your balance faster and decrease total interest paid.

Q4: Why does early interest seem so high?
A: Early payments mostly cover interest because your balance is highest at the start. The interest/principal ratio shifts over time.

Q5: Are there other loan types?
A: This calculator is for fixed-rate loans. Adjustable-rate loans have payments that can change over time.