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Loan Payment Formula:
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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.
The calculator uses the PMT formula:
Where:
Explanation: The formula accounts for compound interest over the life of the loan, calculating a payment that will completely amortize the loan by the end of the term.
Details: Understanding your monthly payment helps with budgeting and financial planning. The repayment schedule shows how much goes toward principal vs. interest each month.
Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in months (e.g., 60 for 5 years). All values must be positive numbers.
Q1: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms reduce monthly payments but increase total interest costs.
Q2: What's the difference between principal and interest?
A: Principal is the amount borrowed. Interest is the cost of borrowing, calculated as a percentage of the remaining principal.
Q3: Why does early repayment show more interest?
A: In amortizing loans, early payments contain more interest because the outstanding balance is higher at the beginning.
Q4: Are there other loan types with different calculations?
A: Yes, interest-only loans and balloon payments have different payment structures. This calculator is for standard amortizing loans.
Q5: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate loans. Actual lender terms may include additional fees or different compounding methods.