1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including interest. It's particularly important for unsecured personal loans which typically have higher interest rates than secured 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)
• \( PMT \) — Fixed monthly payment amount (USD)

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

3. Understanding Unsecured Personal Loans

Details: Unsecured personal loans don't require collateral, resulting in higher interest rates (typically 6%-36% APR) compared to secured loans. Rates depend on credit score, income, and debt-to-income ratio.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage (e.g., 12.5 for 12.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why are unsecured loan rates higher?
A: Without collateral, lenders charge higher rates to offset the increased risk of default.

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 cost.

Q3: What credit score is needed?
A: Most lenders require FICO scores ≥580, with the best rates for scores ≥720.

Q4: Are there prepayment penalties?
A: Many unsecured loans allow early repayment without penalty, but check your loan terms.

Q5: How accurate is this calculator?
A: It provides accurate estimates for fixed-rate loans. Actual offers may include fees not accounted for here.