1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including both principal and interest. This is known as the PMT formula in financial mathematics.

2. How Does the Calculator Work?

The calculator uses the PMT 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 life of the loan, ensuring each payment covers both interest and principal reduction.

3. Importance of Loan Calculation

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

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: 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 interest.

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

Q3: Are results accurate for all loan types?
A: This works best for fixed-rate installment loans. Adjustable-rate or balloon payment loans require different calculations.

Q4: How often should I recalculate?
A: Recalculate whenever interest rates change significantly or if considering refinancing.

Q5: Does this include taxes and insurance?
A: No, this calculates principal and interest only. For mortgages, you'd need to add escrow payments separately.