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. 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:

• \( Payment \) — Periodic payment amount ($)
• \( PV \) — Present value or loan principal ($)
• \( r \) — Interest rate per period (decimal)
• \( n \) — Total number of payment periods

Explanation: This formula calculates the fixed payment that covers both principal and interest over the loan term, ensuring the loan is fully paid off by the end of the period.

3. Importance of Payment Calculation

Details: Accurate payment calculation is essential for budgeting, loan comparison, financial planning, and understanding the true cost of borrowing.

4. Using the Calculator

Tips: Enter the loan amount in dollars, 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 monthly and annual rates?
A: If your loan has an annual rate but monthly payments, divide the annual rate by 12 to get the monthly rate.

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

Q3: What is included in the payment amount?
A: This calculation includes only principal and interest. Additional costs like insurance or taxes may apply to actual payments.

Q4: Can this be used for different payment frequencies?
A: Yes, ensure the interest rate matches the payment period (monthly rate for monthly payments, etc.).

Q5: What about loans with balloon payments?
A: This formula assumes fully amortizing loans. Balloon payment loans require different calculations.