1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan with interest over a specified term. It's based on the principal amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (loan term in months)

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing through the total interest paid.

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: What's the difference between APR and interest rate?
A: The interest rate is the cost of borrowing, while APR includes additional fees. This calculator uses the interest rate for simplicity.

Q2: 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 cost.

Q3: Are there other loan payment methods?
A: Some loans use simple interest or have balloon payments, but this calculator assumes standard amortizing loans.

Q4: Why is my actual payment slightly different?
A: Lenders may round payments or include fees not accounted for here. This provides an estimate.

Q5: How can I pay less interest?
A: Make extra principal payments when possible, choose shorter terms, or negotiate lower rates.