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Simple Bank Loan Calculator

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

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months

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1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term. It accounts for both principal and interest payments, ensuring the loan is fully amortized by the end of the term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

Explanation: The formula calculates the fixed payment needed to pay off the loan while accounting for compound interest over the loan term.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also allows you to compare different loan offers and understand the true cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this calculator account for fees?
A: No, this calculates only principal and interest. Additional fees (origination, insurance, etc.) would increase your actual payment.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and certain fees, giving a more complete picture of loan cost. This calculator uses the simple interest rate.

Q3: 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.

Q4: Can I use this for mortgage calculations?
A: Yes, though mortgages often have additional factors like taxes and insurance that aren't included here.

Q5: How accurate is this calculator?
A: It provides precise calculations based on the inputs, but actual loan terms may vary slightly based on lender policies.

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