1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. It accounts for the principal amount, interest rate, and loan duration to determine regular payments.

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 years × 12)

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers 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 (e.g., 5.25), 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 complete mortgage payment might include escrow for taxes and insurance.

Q2: How does extra payment affect my loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening the loan term.

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

Q4: Why does my payment seem high?
A: Higher interest rates or shorter loan terms increase monthly payments but reduce total interest paid.

Q5: Can I calculate payments for weekly or bi-weekly loans?
A: Yes, but you'd need to adjust both the rate (divide annual rate by payment frequency) and term (multiply years by payment frequency).