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Payday Loan Amortization Formula:
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The Payday Loan Amortization calculates the fixed periodic payment required to pay off a short-term loan with interest over a set number of periods. It helps borrowers understand their repayment obligations.
The calculator uses the amortization formula:
Where:
Explanation: The formula calculates the fixed payment needed to fully amortize (pay off) the loan over the specified periods, including both principal and interest.
Details: Understanding your exact payment amount helps with budgeting and assessing the true cost of payday loans, which often have high interest rates.
Tips: Enter the loan amount in USD, the periodic interest rate as a decimal (e.g., 0.15 for 15%), and the number of payment periods. All values must be positive.
Q1: What's the difference between periodic rate and APR?
A: The periodic rate is the interest rate per payment period. APR (Annual Percentage Rate) is the yearly rate. For bi-weekly payday loans, periodic rate × 26 ≈ APR.
Q2: Are payday loans amortized differently?
A: Payday loans typically use simple amortization but often have much higher interest rates than traditional loans, making the payments larger relative to principal.
Q3: What if I pay more than the calculated amount?
A: Extra payments reduce principal faster and decrease total interest paid, potentially shortening the loan term.
Q4: Why is my payment so high compared to the loan amount?
A: Payday loans often have very high periodic rates (e.g., 15-30% for 2-week periods), making payments large relative to principal.
Q5: Can this calculator be used for installment loans?
A: Yes, this formula works for any fixed-payment loan, though installment loans typically have lower rates and longer terms than payday loans.