1. What is the PMT Formula?

The PMT formula calculates the fixed monthly payment required to pay off a loan over a specified period, including interest. It's widely used for personal loans, auto 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)
• \( n \) — Number of monthly payments (loan term in months)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that covers both principal and interest.

3. Importance of Loan Payment Calculation

Details: Knowing your exact monthly payment helps with budgeting, loan comparison, and financial planning. It ensures you can comfortably afford the loan before committing.

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate, 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 the principal and interest payment. Additional costs like taxes or insurance would be extra.

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 interest.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the cost of borrowing the principal.

Q4: Can I pay extra to reduce the term?
A: Most loans allow extra payments which reduce principal faster, potentially shortening the loan term.

Q5: Are there prepayment penalties?
A: Some loans charge fees for early payoff. Check your loan agreement for details.