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 in financial mathematics.

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)
• \( n \) — Total number of payments (loan term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

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 Calculation

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

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: What's the difference between principal and interest?
A: Principal is the amount you borrowed. Interest is the cost of borrowing that principal, calculated as a percentage of the outstanding balance.

Q2: How does loan term affect payments?
A: Longer terms mean lower monthly payments but higher total interest paid over the life of the loan.

Q3: What is amortization?
A: The process of paying off a loan through regular payments. Early payments go mostly toward interest, while later payments apply more to principal.

Q4: Are there other types of loan calculations?
A: Yes, some loans use simple interest or have balloon payments. This calculator assumes standard amortizing loans.

Q5: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate loans. Actual payments may vary slightly due to rounding or specific lender policies.