Formulas & Math

What is PMT in Financial Calculations?

Learn how lenders calculate fixed monthly payments with the PMT annuity formula.

Mathematical Formula

PMT = (P · r · (1 + r)^n) / ((1 + r)^n − 1)

PMT = Periodic loan payment (monthly installment)
P = Principal loan amount (initial balance borrowed)
r = Periodic interest rate (Annual APR divided by 12)
n = Total number of payment periods (Loan term in years × 12)

The PMT (Payment) formula is the foundational equation used by banks and lenders to calculate fixed-rate installment loans. It determines the exact payment needed each period so that the loan balance reaches exactly zero at the end of the term while fully covering accrued interest.

To see this allocation across your loan term, explore how loan amortization schedules work to separate interest charges from principal reduction over time.

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