1. What is the Loan Payment Formula?

The loan payment formula calculates fixed monthly payments for an amortizing loan (where payments are applied first to interest, then to principal). This is the standard method for personal loans, auto loans, and mortgages.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

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. The calculation shows the true cost of borrowing, including total interest paid.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate (APR), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between simple interest and amortized loans?
A: Simple interest loans calculate interest only on principal. Amortized loans (like this calculator) apply payments to both interest and principal, with interest calculated on the remaining balance.

Q2: Why does my payment stay the same but interest changes?
A: In amortizing loans, early payments are mostly interest. As principal decreases, more of each payment goes toward principal.

Q3: How can I pay less interest overall?
A: Make extra principal payments, choose a shorter term, or negotiate a lower interest rate.

Q4: Does this work for credit cards?
A: No, credit cards typically use revolving credit with minimum payments based on current balance.

Q5: What's not included in this calculation?
A: This doesn't account for fees, insurance, or variable interest rates. Actual loan terms may vary.