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 amortizing loan formula.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

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

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It shows how much interest you'll pay over the life of the loan and helps compare different loan options.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage (e.g., 5.5 for 5.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: 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.

Q2: What's the difference between principal and interest?
A: Principal is the amount borrowed. Interest is the cost of borrowing that amount, calculated as a percentage of the principal.

Q3: Are student loan rates fixed or variable?
A: Both options exist. Federal student loans typically have fixed rates, while private loans may offer variable rates.

Q4: How can I pay less interest?
A: Make extra payments toward principal, refinance at a lower rate, or choose a shorter repayment term.

Q5: Does this calculator account for loan fees?
A: No, this calculates basic amortization. For loans with origination fees, you may need to adjust the principal amount.