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 commonly used for personal loans, auto loans, and other small installment loans.

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

Explanation: The formula accounts for compound interest over the life of the loan, spreading payments evenly across the term.

3. Importance of Loan Payment Calculation

Details: Accurate payment calculation helps borrowers understand their financial commitments, compare loan offers, and budget effectively for repayment.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest payments. Other costs may apply depending on the loan type.

Q2: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing the principal.

Q3: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q4: Can I use this for mortgage calculations?
A: While the formula works, mortgages often have additional factors like PMI and escrow that aren't accounted for here.

Q5: What if I want to make extra payments?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.