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. This formula accounts for the principal amount, interest rate, and loan duration to determine consistent payments that fully amortize the loan.

2. How Does the Calculator Work?

The calculator uses the standard 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 months)

Explanation: The formula calculates the fixed payment needed to pay off the loan over time, with each payment covering both interest and principal.

3. Understanding Loan Payments

Details: Early payments consist mostly of interest, while later payments apply more to principal. The formula ensures the loan is fully paid by the end of the term.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term (in years or months). The calculator will show your monthly payment, total repayment amount, and total interest paid.

5. Frequently Asked Questions (FAQ)

Q1: How does the interest rate affect payments?
A: Higher rates increase both monthly payments and total interest paid. Even small rate differences can significantly impact total loan cost.

Q2: What's better - shorter term or lower payment?
A: Shorter terms mean higher payments but less total interest. Longer terms reduce monthly payments but increase total interest paid.

Q3: How can I reduce total interest paid?
A: Make extra principal payments when possible, choose shorter terms, or secure lower interest rates.

Q4: Are there other loan costs not included here?
A: This calculator doesn't include fees, insurance, or taxes which may be part of actual mortgage payments.

Q5: 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.