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 components.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( PMT \) — Monthly payment (USD)
• \( PV \) — Loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula accounts for the time value of money, calculating equal payments that cover both interest and principal reduction over the loan term.

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting and financial planning. The amortization schedule shows how each payment is split between principal and interest.

4. Using the Calculator

Tips: Enter loan amount in USD, annual interest rate as a percentage, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does early payment go mostly toward interest?
A: Interest is calculated on the outstanding balance, which is highest at the start of the loan term.

Q2: How can I pay less interest overall?
A: Make extra principal payments or choose a shorter loan term to reduce total interest paid.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and any fees, giving a more complete cost picture.

Q4: Are there prepayment penalties?
A: Some loans charge fees for early payoff - check your loan agreement.

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