1. What is the Promissory Note Payment Formula?

The promissory note 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 payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Interest rate per period (decimal)
• \( n \) — Total number of payment periods
• \( PMT \) — Fixed payment amount per period

Explanation: The formula accounts for both the principal repayment and the interest charged on the outstanding balance over the loan term.

3. Importance of Payment Calculation

Details: Accurate payment calculation is crucial for financial planning, loan agreements, and understanding the total cost of borrowing.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between annual rate and periodic rate?
A: The formula uses the rate per payment period. For monthly payments with an annual rate, divide the annual rate by 12.

Q2: How does payment change with different terms?
A: Longer terms reduce periodic payments but increase total interest paid. Shorter terms have higher payments but lower total interest.

Q3: What if payments are made more frequently?
A: More frequent payments require adjusting both the rate (divide annual rate by number of periods) and the number of periods.

Q4: Does this work for interest-only loans?
A: No, this formula calculates fully amortizing loans where each payment includes both principal and interest.

Q5: How accurate is this calculation?
A: This provides the theoretical payment amount. Actual loan terms may include additional fees or variations.