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.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( Principal \) — Original loan amount
• \( Rate \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the fixed payment that pays interest and principal over the loan term, with interest costs highest at the beginning.

3. Importance of Payment Calculation

Details: Knowing your exact monthly payment helps with budgeting and comparing loan offers. It shows how much goes toward principal vs. interest each month.

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 principal and interest only. A full mortgage payment might include escrow for taxes and insurance.

Q2: 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 cost.

Q3: What's the difference between APR and interest rate?
A: The interest rate is the base cost of borrowing. APR includes fees and other loan costs, giving a more complete cost picture.

Q4: Can I calculate payments for extra payments?
A: This calculator shows standard payments. Extra payments require an amortization schedule to see their impact.

Q5: Why are my actual payments slightly different?
A: Lenders may use slightly different rounding methods or payment frequencies (bi-weekly vs. monthly).