The formula used in the calculation is:
\[ PF = \frac{i \times (1 + i)^n}{(1 + i)^n - 1} \]
where:
A payment factor is a figure that, when multiplied by the principal amount of a loan, gives the periodic payment amount needed to pay off the loan over a specified number of payments with a certain interest rate. It is a useful tool for financial planning and understanding the cost of borrowing over time.
Example with an annual interest rate of 6% and 12 payments:
Calculate the monthly interest rate:
\[ i = \frac{6}{12 \times 100} = 0.005 \]
Calculate \( (1 + i)^{12} \):
\[ (1 + 0.005)^{12} \approx 1.06168 \]
Calculate the numerator:
\[ 0.005 \times 1.06168 \approx 0.0053084 \]
Calculate the denominator:
\[ 1.06168 - 1 = 0.06168 \]
Calculate the payment factor:
\[ PF = \frac{0.0053084}{0.06168} \approx 0.0861 \]
