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 the standard formula used for most fixed-rate personal loans.

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 ÷ 12)
• \( n \) — Number of monthly payments (term in months)
• \( PMT \) — Fixed 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.

3. Importance of Loan Payment Calculation

Details: Calculating monthly payments helps borrowers understand loan affordability, compare different loan offers, and plan their budgets accordingly.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 5.25), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this calculator work for credit cards?
A: No, this is for fixed-rate installment loans. Credit cards typically use different calculation methods with variable rates.

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 costs not included?
A: This calculates principal and interest only. Real loans may have fees, insurance, or other costs not reflected here.

Q4: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the periodic interest charge. This calculator uses simple interest rate.

Q5: Can I use this for mortgage calculations?
A: While the formula is similar, mortgages often have additional factors (PMI, taxes, insurance) that aren't accounted for here.