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. This is known as the amortizing loan formula.

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 reduction.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing through total interest calculations.

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: 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 interest.

Q2: What's the difference between interest rate and APR?
A: APR includes both interest rate and any loan fees, giving a more complete picture of borrowing costs.

Q3: Can I pay off my loan early?
A: Most loans allow early payoff, but some have prepayment penalties. Check your loan agreement.

Q4: Why is my first payment mostly interest?
A: Early in the loan, more of each payment goes toward interest. This shifts toward principal as the loan matures (amortization).

Q5: How can I reduce total interest paid?
A: Make larger payments when possible, choose a shorter term, or refinance at a lower rate when available.