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 months)
• \( PMT \) — Fixed monthly payment amount (USD)

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

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan options and choose terms that fit your financial situation.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in either years or months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does loan term affect payments?
A: Longer terms result in lower monthly payments but higher total interest paid over the life of the loan.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and any additional fees, providing a more complete cost picture.

Q3: Can I pay off my loan early?
A: Most loans allow early repayment, but some may have prepayment penalties - check your loan agreement.

Q4: How does principal affect payments?
A: Higher principal amounts result in higher monthly payments, all else being equal.

Q5: What if I make additional payments?
A: Extra payments reduce the principal faster, potentially saving interest and shortening the loan term.