1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. This formula accounts for both principal and interest payments.

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)
• \( PMT \) — Monthly payment amount (USD)

Explanation: The formula calculates the fixed payment that pays off the loan with interest by the end of the 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 to principal.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Why does my payment include so much interest?
A: Early in the loan term, most of your payment goes toward interest due to the amortization schedule.

Q2: How can I reduce my total interest paid?
A: Making extra principal payments or choosing a shorter loan term will reduce total interest.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and any additional loan fees, giving a more complete cost picture.

Q4: Are there loans with different payment structures?
A: Yes, some loans have interest-only periods or balloon payments, but this calculator assumes standard amortization.

Q5: How accurate is this calculator?
A: It provides standard amortization results, but actual loans may have slight variations due to rounding or specific lender policies.