1. What is the P+I Payment Formula?

The P+I (Principal + Interest) payment formula calculates the fixed periodic payment 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 P+I payment formula:

Where:

• \( Loan \) — Original loan amount ($)
• \( Rate \) — Periodic interest rate (decimal)
• \( n \) — Total number of payment periods

Explanation: This formula calculates the fixed payment amount that covers both principal repayment and interest charges for each period.

3. Importance of P+I Payment Calculation

Details: Accurate P+I payment calculation is crucial for loan amortization planning, budgeting, and understanding the total cost of borrowing over the loan term.

4. Using the Calculator

Tips: Enter loan amount in dollars, interest rate as a decimal (e.g., 0.05 for 5%), and number of payment periods. All values must be positive.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between P+I and interest-only payments?
A: P+I payments include both principal and interest, reducing the loan balance over time, while interest-only payments cover only interest, leaving the principal unchanged.

Q2: How does the interest rate affect the payment amount?
A: Higher interest rates result in higher P+I payments, as more money goes toward interest rather than principal reduction.

Q3: What happens if I make extra payments?
A: Extra payments reduce the principal balance faster, potentially shortening the loan term and reducing total interest paid.

Q4: Can this formula be used for any type of loan?
A: This formula works for fixed-rate amortizing loans, including mortgages, auto loans, and personal loans with constant payments.

Q5: How is the periodic rate calculated from an annual rate?
A: For monthly payments, divide the annual rate by 12. For quarterly payments, divide by 4. Ensure the rate matches the payment frequency.