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.

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 years × 12)
• \( PMT \) — Fixed monthly payment amount (USD)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a payment that will pay off both principal and interest by the end of the term.

3. Importance of Amortization Schedule

Details: An amortization schedule shows how each payment is split between principal and interest, how the loan balance decreases over time, and helps borrowers understand the true cost of borrowing.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does early payment go mostly toward interest?
A: Interest is calculated on the outstanding balance, which is highest at the beginning of the loan term.

Q2: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter loan term, or negotiate a lower interest rate.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and any loan fees, giving a more complete picture of borrowing costs.

Q4: Are there loans with different payment structures?
A: Yes, some loans have interest-only periods, balloon payments, or variable rates that change over time.

Q5: How accurate is this calculator?
A: It provides standard amortization for fixed-rate loans. Actual loan terms may vary based on lender policies.