This calculator helps you determine the fixed monthly payment required to repay a loan over a specified period, considering the principal amount, interest rate, and loan term. Understanding this calculation is crucial for budgeting and making informed financial decisions.
How It Works: The Math Behind the Calculation
The formula used to calculate the monthly loan payment (M) is a standard amortization formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
M = Your total monthly mortgage payment
P = The principal loan amount (the amount you borrow)
i = Your monthly interest rate. This is calculated by dividing the annual interest rate by 12 (e.g., 5% annual rate / 12 months = 0.05 / 12 = 0.004167).
n = The total number of payments over the loan's lifetime. This is calculated by multiplying the number of years in the loan term by 12 (e.g., a 5-year loan means 5 * 12 = 60 payments).
Why This Matters
Regularly scheduled payments ensure that the loan is fully repaid by the end of the term. Each payment consists of two parts: the principal repayment and the interest payment. In the beginning, a larger portion of your payment goes towards interest, and as the loan matures, more of your payment goes towards reducing the principal.
Key Inputs Explained:
Loan Amount: The total sum of money you are borrowing. This is the principal that needs to be repaid.
Annual Interest Rate: The yearly cost of borrowing money, expressed as a percentage. Lenders use this to calculate the interest charged on your outstanding balance.
Loan Term (Years): The total duration over which you agree to repay the loan. A longer term generally means lower monthly payments but higher total interest paid over time.
Example Scenario:
Let's say you are taking out a loan for $20,000 with an annual interest rate of 5% over a term of 5 years.
This calculation results in a monthly payment of approximately $377.42.
Disclaimer:
This calculator provides an estimate based on the standard amortization formula. Actual loan payments may vary due to lender fees, specific loan terms, or variations in calculation methods. Always consult with your lender for precise figures.
function calculateLoanPayment() {
var loanAmount = parseFloat(document.getElementById("loanAmount").value);
var annualInterestRate = parseFloat(document.getElementById("annualInterestRate").value);
var loanTermYears = parseFloat(document.getElementById("loanTermYears").value);
var errorMessageElement = document.getElementById("errorMessage");
var monthlyPaymentElement = document.getElementById("monthlyPayment");
errorMessageElement.style.display = 'none';
monthlyPaymentElement.style.color = '#28a745';
if (isNaN(loanAmount) || isNaN(annualInterestRate) || isNaN(loanTermYears) || loanAmount <= 0 || annualInterestRate < 0 || loanTermYears <= 0) {
errorMessageElement.textContent = "Please enter valid positive numbers for all fields.";
errorMessageElement.style.display = 'block';
monthlyPaymentElement.textContent = "$0.00";
return;
}
// Convert annual interest rate to monthly interest rate
var monthlyInterestRate = annualInterestRate / 100 / 12;
// Calculate the total number of payments
var numberOfPayments = loanTermYears * 12;
var monthlyPayment = 0;
// Handle the case of 0% interest rate separately to avoid division by zero
if (monthlyInterestRate === 0) {
monthlyPayment = loanAmount / numberOfPayments;
} else {
// Calculate monthly payment using the amortization formula
monthlyPayment = loanAmount * (monthlyInterestRate * Math.pow(1 + monthlyInterestRate, numberOfPayments)) / (Math.pow(1 + monthlyInterestRate, numberOfPayments) – 1);
}
// Format the monthly payment to two decimal places
var formattedMonthlyPayment = "$" + monthlyPayment.toFixed(2);
monthlyPaymentElement.textContent = formattedMonthlyPayment;
}