1. What is the Loan Payment Equation?

The loan payment equation calculates the fixed monthly payment required to pay off a loan over a specified term. It's based on the principal amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the loan payment equation:

Where:

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

Explanation: The equation accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest.

3. Importance of Loan Payment Calculation

Details: Understanding your loan payment 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, and loan term in years. 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. A full mortgage payment might include additional amounts for taxes and insurance.

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'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.

Q4: Can I use this for any type of loan?
A: Yes, this works for mortgages, auto loans, personal loans, and other fixed-rate installment loans.

Q5: How can I pay less interest?
A: Make extra principal payments when possible, choose a shorter term, or secure a lower interest rate.