1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed periodic payment required to pay off a loan over a specified period, including interest. It's used for mortgages, car loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( PMT \) — Periodic payment amount (USD)
• \( PV \) — Present value or principal amount (USD)
• \( r \) — Periodic interest rate (decimal)
• \( n \) — Total number of payments (unitless)

Explanation: The formula accounts for both principal repayment and interest charges over the life of the loan.

3. Importance of Loan Calculation

Details: Accurate loan payment calculation helps borrowers understand their repayment obligations and compare different loan options.

4. Using the Calculator

Tips: Enter the loan amount in USD, interest rate as a decimal (e.g., 0.05 for 5%), and number of payment periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between annual and monthly rate?
A: For monthly payments, divide the annual rate by 12 and use the total number of monthly payments.

Q2: Does this include taxes and insurance?
A: No, this calculates principal and interest only. Actual payments may include additional costs.

Q3: What if I want to make extra payments?
A: Extra payments reduce principal faster and shorten the loan term, saving interest.

Q4: How does loan term affect payments?
A: Longer terms mean lower payments but more total interest paid over the life of the loan.

Q5: What's an amortization schedule?
A: A table showing how each payment is split between principal and interest over time.