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 PMT formula:

Where:

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

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 financial planning. It also allows you to compare different loan offers and terms.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, and loan term (in years or months). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between principal and interest?
A: Principal is the original loan amount. Interest is the cost of borrowing that amount, calculated as a percentage of the principal.

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 interest.

Q3: What is amortization?
A: The process of gradually paying off a loan through regular payments that cover both principal and interest.

Q4: Are there other loan payment structures?
A: Yes, some loans have interest-only periods or 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 lender-specific practices.