1. What is the Amortized Loan Payment Formula?

The amortized loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term, including both principal and interest components. This formula is used for mortgages, car loans, and other installment loans.

2. How Does the Calculator Work?

The calculator uses the amortization formula:

Where:

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

Explanation: This formula calculates the fixed monthly payment that will completely pay off the loan, including interest, by the end of the loan term.

3. Importance of Monthly Payment Calculation

Details: Understanding your monthly payment helps with budgeting, comparing loan offers, and making informed financial decisions about borrowing capacity and affordability.

4. Using the Calculator

Tips: Enter the principal amount in dollars, annual interest rate as a percentage, and loan term in years. 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 amortization?
A: Amortization is the process of paying off a loan through regular payments that cover both principal and interest.

Q4: Are there other costs not included in this calculation?
A: Yes, this calculation doesn't include taxes, insurance, or fees that may be part of your total monthly payment.

Q5: Can I use this for different types of loans?
A: This formula works for most fixed-rate installment loans including mortgages, auto loans, and personal loans.