1. What is the Monthly Payment Formula?

The monthly payment formula (PMT) calculates the fixed payment amount required to pay off a loan over a specified term, including interest. It's used for mortgages, car loans, personal loans, and other installment debts.

2. How Does the Calculator Work?

The calculator uses the PMT formula:

Where:

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

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Monthly Payment Calculation

Details: Knowing your exact monthly payment helps with budgeting, comparing loan offers, and understanding the total cost of borrowing.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage (e.g., 5.25 for 5.25%), and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates only principal and interest. For mortgages, taxes and insurance would be additional.

Q2: How does extra payment affect the loan?
A: Extra payments reduce principal faster, potentially saving interest and shortening the loan term.

Q3: What's the difference between APR and interest rate?
A: APR includes fees and other loan costs, while interest rate is just the cost of borrowing principal.

Q4: Why does a longer term increase total interest?
A: Interest compounds over time, so more payments mean more interest accumulates.

Q5: Can this formula be used for credit cards?
A: Not directly, as credit cards typically have minimum payments based on balance percentage plus interest.