1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term. It's based on the principal amount, interest rate, and loan duration, providing an accurate estimate of regular payments.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( Principal \) — Original loan amount in CAD
• \( Rate \) — Monthly interest rate as a decimal
• \( Term \) — Loan duration in months

Explanation: This formula calculates the fixed monthly payment needed to pay off a loan with interest over the specified term.

3. Importance of Loan Calculation

Details: Accurate loan payment calculation is essential for financial planning, budgeting, and understanding the true cost of borrowing. It helps borrowers make informed decisions about loan affordability.

4. Using the Calculator

Tips: Enter the principal amount in CAD, the monthly interest rate as a decimal (e.g., 0.005 for 0.5%), and the 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 rate becomes 0.06/12 = 0.005 monthly rate.

Q2: Does this calculator account for additional fees?
A: No, this calculator provides the base payment amount. Additional fees like origination fees or insurance would increase the total cost.

Q3: What if I have an interest-free loan?
A: If the rate is 0%, your monthly payment is simply the principal divided by the term.

Q4: Can I use this for mortgage calculations?
A: Yes, this formula works for any fixed-rate loan, including mortgages, car loans, and personal loans.

Q5: How accurate is this calculation?
A: This provides the mathematically precise payment amount for a fixed-rate loan with consistent payments.