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:

• \( M \) — Monthly payment
• \( P \) — 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 Calculation

Details: Understanding your monthly payment helps with budgeting and financial planning. It also shows the true cost of borrowing by revealing total interest paid over the loan term.

4. Using the Calculator

Tips: Enter the loan amount in dollars, annual interest rate as a percentage (e.g., 3.5 for 3.5%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's included in the monthly payment?
A: This calculates principal and interest only. Your actual payment may include property taxes, insurance, and PMI if applicable.

Q2: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but increase total interest.

Q3: What's the difference between interest rate and APR?
A: Interest rate is the cost of borrowing principal. APR includes fees and other loan costs, representing the true annual cost.

Q4: How can I pay less interest?
A: Make extra principal payments, choose a shorter term, or secure a lower interest rate.

Q5: Are there loans with different payment structures?
A: Yes, some loans have interest-only periods, balloon payments, or adjustable rates which require different calculations.