1. What is the Loan Payment Formula?

The PMT formula calculates the fixed monthly payment required to pay off a loan over a specified period, including both principal and interest. It's commonly used for personal loans, auto loans, and mortgages.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal reduction.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and ensures you can comfortably afford the loan before committing.

4. Using the Calculator

Tips: Enter the loan amount in dollars, monthly interest rate as a decimal (e.g., 0.01 for 1%), and number of monthly payments. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual rate to monthly?
A: Divide the annual percentage rate (APR) by 12. For example, 12% APR = 0.12/12 = 0.01 monthly rate.

Q2: Does this include taxes and insurance?
A: No, this calculates principal and interest only. Your actual payment may include escrow for taxes and insurance.

Q3: What's the difference between PMT and P+I?
A: They're the same - PMT is the payment amount covering principal and interest (P+I).

Q4: Can I use this for credit card payments?
A: Not directly, as credit cards typically have minimum payment formulas based on balance percentage.

Q5: How accurate is this calculator?
A: It provides precise calculations for fixed-rate loans. Variable-rate loans would require more complex calculations.