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.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( PMT \) — Monthly payment (currency/month)
• \( P \) — Principal loan amount (currency)
• \( r \) — Monthly interest rate (decimal/month)
• \( n \) — Total number of months

Explanation: This formula accounts for compound interest and calculates the fixed payment that will completely pay off the loan over the specified term.

3. Importance of Monthly Payment Calculation

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

4. Using the Calculator

Tips: Enter the principal amount in currency units, monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and loan term in months. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: How do I convert annual interest rate to monthly?
A: Divide the annual interest rate by 12. For example, 6% annual = 0.06/12 = 0.005 monthly.

Q2: What is included in the monthly payment?
A: The payment includes both principal repayment and interest charges for that period.

Q3: Can this formula be used for different payment frequencies?
A: This specific formula is for monthly payments. For other frequencies, adjust the rate and term accordingly.

Q4: Does this account for additional fees or insurance?
A: No, this calculates only the principal and interest portion. Additional costs like insurance or fees are separate.

Q5: What if I want to calculate total interest paid?
A: Total interest = (Monthly Payment × Number of Months) - Principal Amount.