1. What is the PMT Formula?

The PMT (Payment) formula calculates the fixed periodic payment required to pay off a loan over a specified term, including interest. It's the standard calculation used for most personal loans and mortgages.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula accounts for compound interest over the life of the loan to determine a fixed payment amount that will pay off the loan by the end of the term.

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting and comparing different loan offers. It shows the true cost of borrowing when interest is included.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include fees and charges?
A: This calculates principal and interest only. Additional fees may apply depending on the lender.

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 fixed and variable rates?
A: Fixed rates stay the same for the loan term. Variable rates can change, affecting future payments.

Q4: Are there prepayment penalties?
A: Some loans charge fees for early repayment. Check with your lender.

Q5: How accurate is this calculator?
A: It provides standard PMT calculations. Actual loan terms may vary slightly based on lender policies.