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 interest. It's based on the loan amount, annual interest rate (APR), and loan term.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (APR/12 in decimal)
• \( n \) — 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 APR Calculation

Details: APR (Annual Percentage Rate) represents the true cost of borrowing, including interest and fees. Calculating monthly payments helps borrowers understand affordability and compare loan offers.

4. Using the Calculator

Tips: Enter the loan amount, APR (not interest rate), and loan term in years. For accurate results, use the lowest APR available to you and consider different loan terms.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, giving a more complete picture of borrowing costs.

Q2: How can I get the lowest APR?
A: Improve your credit score, shop around with multiple lenders, consider shorter loan terms, and make a larger down payment.

Q3: Why does a small APR difference matter?
A: Even 0.5% APR difference can save thousands over a 30-year mortgage due to compounding.

Q4: Should I choose a loan with lowest payment or lowest APR?
A: Lowest APR typically saves more money long-term, but ensure the payment fits your budget.

Q5: How does loan term affect payments?
A: Shorter terms mean higher monthly payments but less total interest paid. Longer terms lower payments but increase total cost.