1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed periodic payment required to fully amortize a loan over its term. It accounts for the principal amount, interest rate, and number of payment periods.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Periodic interest rate (decimal)
• \( n \) — Total number of payment periods

Explanation: The formula calculates the fixed payment amount that covers both principal and interest for each period of the loan.

3. Importance of Loan Calculation

Details: Understanding loan payments helps borrowers plan their finances, compare loan options, and determine affordability before committing to a loan.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How do I convert APR to periodic rate?
A: Divide annual rate by number of periods per year (e.g., for monthly payments on 6% APR: 0.06/12 = 0.005).

Q2: What's included in the payment amount?
A: The calculated payment includes both principal and interest but not additional fees or insurance.

Q3: How does payment change with different terms?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total cost.

Q4: Can this be used for mortgages?
A: Yes, this formula works for any fixed-rate amortizing loan including mortgages, car loans, and personal loans.

Q5: What about variable rate loans?
A: This calculator assumes a fixed rate. Variable rate loans require more complex calculations as rates change over time.