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 the standard formula used for fixed-rate amortizing loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( PMT \) — Monthly payment amount
• \( P \) — 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, calculating a fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your loan payments helps with budgeting, comparing loan options, and making informed financial decisions. It shows the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), and loan term in years for both loans you want to compare. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What types of loans does this calculator work for?
A: This works for standard fixed-rate amortizing loans like mortgages, auto loans, and personal loans.

Q2: Why compare two loans side by side?
A: Comparing helps you see which loan option has better terms - lower payments, less total interest, or shorter term.

Q3: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For mortgages, you'll need to add property taxes and insurance separately.

Q4: What's the difference between interest rate and APR?
A: APR includes fees and other loan costs. This calculator uses the interest rate for principal+interest payments only.

Q5: How can I pay less interest overall?
A: Choose a shorter loan term or make additional principal payments to reduce total interest paid.