1. What is the Monthly Payment Formula?

The monthly payment formula calculates the fixed payment amount required to pay off a loan over a specified period, including both principal and interest components. This is commonly used for mortgages, car loans, and personal loans.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for compound interest and amortizes the loan over the specified term, ensuring each payment covers both interest and principal reduction.

3. Importance of Monthly Payment Calculation

Details: Accurate monthly payment calculation is essential for budgeting, loan comparison, and financial planning. It helps borrowers understand their repayment obligations and make informed borrowing decisions.

4. Using the Calculator

Tips: Enter the loan amount in dollars, monthly interest rate as a percentage (e.g., 0.5 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 rate by 12. For example, 6% annual = 0.5% monthly (6 ÷ 12 = 0.5).

Q2: What's included in the monthly payment?
A: The calculated payment includes principal and interest only. Additional costs like insurance, taxes, or fees are not included.

Q3: Can I use this for different loan types?
A: Yes, this formula works for most fixed-rate installment loans including mortgages, auto loans, and personal loans.

Q4: What if I have extra payments?
A: Extra payments reduce the principal faster and shorten the loan term, but this calculator shows the standard scheduled payment.

Q5: How accurate is this calculation?
A: This provides the standard mathematical calculation used by most lenders for fixed-rate loans.