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. It provides a standardized way to compare different loan options.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate divided by 12, in decimal)
• \( n \) — Number of months in loan term
• \( PMT \) — Fixed monthly payment (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 Payment Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitments, compare loan offers, and budget effectively for repayment.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For complete payment estimates, add property taxes and insurance if applicable.

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

Q4: Can I use this for mortgage loans?
A: Yes, the formula works for any fixed-rate loan, including mortgages, auto loans, and personal loans.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Variable-rate loans would require more complex modeling.