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 term with a fixed interest rate. It's based on the time value of money concept.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( Principal \) — Original loan amount
• \( r \) — Monthly interest rate (APR/12)
• \( n \) — Number of monthly payments (loan term in months)

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

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing different loan offers. It also shows the total cost of borrowing.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between APR and interest rate?
A: APR includes both interest rate and any additional fees, giving a more complete picture of loan cost.

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 is amortization?
A: The process of paying off debt over time through regular payments that cover both principal and interest.

Q4: Are there loans with different payment structures?
A: Yes, some loans have variable rates, interest-only periods, or balloon payments which require different calculations.

Q5: How can I pay less interest overall?
A: Make extra principal payments when possible, choose shorter loan terms, or negotiate lower interest rates.