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 amortizing loan formula.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — 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, calculating a fixed payment that pays off both principal and interest over the term.

3. Understanding Loan Payments

Details: Each payment consists of both interest and principal. Early in the loan, most of the payment goes toward interest. As the loan matures, more of each payment goes toward principal.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate (as a percentage), and loan term in years. The calculator will show monthly payment, total repayment amount, and total interest paid.

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 fees and other loan costs. This calculator uses the simple interest rate.

Q2: How can I pay less interest overall?
A: You can pay less interest by choosing a shorter loan term or making additional principal payments when possible.

Q3: Why does my payment stay the same but interest changes?
A: With fixed-rate loans, the payment amount stays constant but the portion going to interest decreases over time as the principal balance reduces.

Q4: What's an amortization schedule?
A: A table showing each payment's breakdown between principal and interest, and the remaining balance after each payment.

Q5: How does a higher down payment affect my loan?
A: A larger down payment reduces the principal amount, resulting in lower monthly payments and less total interest paid.