Guide
How to Calculate a Loan Payment
Understand the fixed-payment formula used for many installment loans.
Key idea
Understand the fixed-payment formula used for many installment loans.
Formula or method
M = P × r(1+r)^n ÷ ((1+r)^n − 1), where r is the monthly rate.
Worked example
Start with the values in your question, substitute them into the formula, and keep the units consistent. For example, if a rate is given as 15%, use 0.15 when a formula requires a decimal.
Common mistakes
- Mixing percentage points with percentage change.
- Using different units for the same calculation.
- Rounding too early when several steps are involved.
Tip: Use the matching AvyTool calculator to check your result after working through the method.
Why the result can differ
Real-world calculations can include assumptions, rounding, fees, tax rules, calendar conventions, or other details. Treat simple calculator results as estimates when the underlying situation is more complex.