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 known as the amortizing loan payment formula.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

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 loan payments helps with budgeting, comparing loan offers, and making informed financial decisions about large purchases.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest rate and APR?
A: The interest rate is the cost of borrowing principal, while APR includes interest plus other loan fees, giving a more complete cost picture.

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: Can I pay off my loan early?
A: Most loans allow early payoff, but some have prepayment penalties. Check your loan terms.

Q5: How can I reduce total interest paid?
A: Make extra principal payments when possible, choose a shorter loan term, or refinance at a lower rate.