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. This formula is used for amortizing loans where each payment covers both principal and interest.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Total number of payments (loan term in months)

Explanation: This formula calculates the fixed payment amount that will completely pay off the loan including interest over the specified term.

3. Importance of Payment Calculation

Details: Accurate payment calculation is crucial for budgeting, loan comparison, and financial planning. It helps borrowers understand their monthly obligations and total loan cost.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between principal and interest?
A: Principal is the original loan amount borrowed, while interest is the cost of borrowing that money over time.

Q2: How does loan term affect monthly payments?
A: Longer loan terms result in lower monthly payments but higher total interest paid over the life of the loan.

Q3: What is an amortization schedule?
A: An amortization schedule shows how each payment is split between principal and interest over the loan term.

Q4: Can I pay off my loan early?
A: Yes, but check for prepayment penalties. Early payment reduces total interest paid.

Q5: What factors affect loan eligibility?
A: Credit score, income, debt-to-income ratio, and loan-to-value ratio are key factors lenders consider.