1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. The formula accounts for the principal amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of payments (loan term in months)

For extra payments: The calculator simulates each payment, applying the extra amount to principal, and tracks how this reduces the loan term and total interest.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce the loan term and total interest paid. For example, an extra $100/month on a $300,000 loan at 4% for 30 years can save ~4 years and ~$26,000 in interest.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Optionally add an extra monthly payment to see how it affects your loan. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments reduce principal faster, which decreases total interest and shortens the loan term.

Q2: Should I pay extra principal or get a shorter term?
A: Extra payments offer flexibility (you can stop if needed), while shorter terms usually have lower rates but higher required payments.

Q3: Are there prepayment penalties?
A: Most modern loans don't have them, but check your loan agreement to be sure.

Q4: When is the best time to make extra payments?
A: Earlier in the loan term saves more interest, but any time helps.

Q5: How much should I pay extra?
A: Even small amounts help. Consider rounding up payments or adding a fixed amount you can afford consistently.