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How to Calculate Monthly Loan Payments Using the Amortization Formula

Learn how to calculate monthly payments for loans like mortgages and car loans using a simple formula for fixed monthly payments.

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Video transcript

To calculate monthly payments, use the formula: M = P[r(1+r)^n]/[(1+r)^n-1]. M is the monthly payment, P is the loan principal, r is the monthly interest rate (annual rate divided by 12), and n is the number of months. This formula helps you determine the fixed monthly payment for loans like mortgages and car loans.

Questions and answers

  1. What is the formula to calculate monthly loan payments?

    The formula is M = P[r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the loan principal, r is the monthly interest rate, and n is the number of months.

  2. How do I find the monthly interest rate from the annual rate?

    Divide the annual interest rate by 12 to get the monthly interest rate.

  3. Can this formula be used for all types of loans?

    This formula is typically used for loans with fixed interest rates and fixed monthly payments, such as mortgages and car loans.

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