Simple Loan Repayment Calculator

Loan Payment Formula:

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

Monthly Payment (PMT):

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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 most fixed-rate loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

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

Where:

\( P \) — Principal loan amount (USD)
\( r \) — Monthly interest rate (annual rate ÷ 12, in decimal form)
\( n \) — Number of monthly payments (term in years × 12)
\( PMT \) — Fixed monthly payment amount (USD)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It allows you to compare different loan options and choose terms that fit your financial situation.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this work for all types of loans?
A: This formula works for standard fixed-rate loans. Adjustable-rate loans or loans with balloon payments require different calculations.

Q2: 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 interest.

Q3: Why is my actual payment slightly different?
A: Actual payments may vary due to rounding, fees, or different compounding methods used by lenders.

Q4: Can I calculate how much goes to principal vs interest?
A: Yes, but you'd need an amortization schedule which breaks down each payment's principal and interest components.

Q5: How accurate is this calculator?
A: It provides a close estimate, but for exact figures you should consult with your lender as they may use slightly different methods.