1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term, including interest. This is known as the PMT formula in financial mathematics.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (months)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that covers both principal and interest each month.

3. Understanding Loan Payments

Details: Each payment consists of both interest and principal. Early payments are mostly interest, while later payments are mostly principal. This is known as loan amortization.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate (as a percentage), 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 loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total interest.

Q2: What's the difference between APR and interest rate?
A: APR includes both interest rate and other loan fees, giving a more complete picture of loan cost.

Q3: How can I pay less interest?
A: Make extra principal payments, choose a shorter term, or secure a lower interest rate.

Q4: What's an amortization schedule?
A: A table showing each payment's breakdown between principal and interest over the loan term.

Q5: Are there different types of loans?
A: Yes, common types include fixed-rate (payment stays the same) and adjustable-rate (payment can change).