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 PMT (payment) formula.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (term in years × 12)

Explanation: The formula accounts for the time value of money, calculating equal payments that cover both interest and principal reduction over the loan term.

3. Understanding Amortization

Details: Amortization is the process of spreading out loan payments over time. Early payments consist mostly of interest, while later payments apply more toward principal. The schedule shows this breakdown month-by-month.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, and loan term in years or months. The calculator will show your monthly payment and full amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How does extra principal payment affect the loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, representing the true annual cost of borrowing.

Q3: Why does most of my early payment go to interest?
A: Interest is calculated on the outstanding balance, which is highest at the start of the loan.

Q4: Can I change the payment frequency?
A: This calculator assumes monthly payments. Bi-weekly payments would require different calculations.

Q5: How accurate is this calculator?
A: It provides standard amortization calculations. Actual loan terms may include additional fees or variations.