1. What is the Annuity Repayment Formula?

The annuity repayment 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 annuity repayment formula:

Where:

• \( P \) — Periodic payment amount
• \( PV \) — Present value or loan amount
• \( r \) — Interest rate per period (decimal)
• \( n \) — Total number of payment periods

Explanation: This formula calculates the fixed payment amount needed to fully amortize a loan over the specified number of periods at the given interest rate.

3. Importance of Annuity Calculation

Details: Accurate annuity calculation is crucial for financial planning, loan structuring, and understanding the true cost of borrowing over time.

4. Using the Calculator

Tips: Enter the present value in currency units, 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 is the difference between annuity and simple interest?
A: Annuity payments include both principal and interest, with the interest portion decreasing over time as the principal is paid down.

Q2: How does the interest rate affect the payment amount?
A: Higher interest rates result in higher periodic payments as more interest accrues on the outstanding balance.

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

Q4: Can this formula be used for different payment frequencies?
A: Yes, but the interest rate and number of periods must match the payment frequency (monthly, quarterly, annually).

Q5: What is an amortization schedule?
A: An amortization schedule shows the breakdown of each payment into principal and interest components over the life of the loan.