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. This is the standard formula used for amortizing loans.

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 accounts for compound interest over the life of the loan, ensuring each payment covers both interest and principal repayment.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with business budgeting, cash flow planning, and comparing different loan options.

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. Business loans may have additional costs not included here.

Q2: 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.

Q3: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.

Q4: Can I use this for personal loans?
A: Yes, the formula works for any fixed-rate amortizing loan, though terms may differ.

Q5: What about variable rate loans?
A: This calculator assumes a fixed rate. Variable rate loans would require more complex calculations.