1. What is the Loan Payment Formula?

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

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment (currency/month)
• \( P \) — Principal loan amount (currency)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Total number of payments (months)

Explanation: This formula accounts for both principal repayment and interest charges, distributing the total cost evenly across all payment periods.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is crucial for budgeting, loan comparison, financial planning, and ensuring affordability before committing to a loan.

4. Using the Calculator

Tips: Enter the principal amount in currency, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and loan term in months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual interest rate to monthly?
A: Divide the annual interest rate by 12. For example, 6% annual = 0.06/12 = 0.005 monthly.

Q2: What if I want to calculate total interest paid?
A: Total interest = (Monthly payment × Number of payments) - Principal amount.

Q3: Does this formula work for all types of loans?
A: This formula works for standard amortizing loans with fixed payments. It may not apply to interest-only loans or loans with balloon payments.

Q4: How does loan term affect monthly payments?
A: Longer loan terms result in lower monthly payments but higher total interest costs over the life of the loan.

Q5: Can I use this for mortgage calculations?
A: Yes, this is the standard formula used for fixed-rate mortgage calculations, though additional costs like property taxes and insurance are not included.