1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including interest. The formula accounts for compound interest and amortization of the principal amount.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

For extra payments: The calculator also shows how additional principal payments affect the loan term and total interest paid.

3. Importance of Extra Payments

Details: Making extra payments toward principal can significantly reduce the total interest paid and shorten the loan term. Even small additional amounts can have a large impact over time.

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 save money?
A: Extra payments reduce the principal faster, which means less interest accrues over the life of the loan.

Q2: Is it better to pay extra monthly or make lump sum payments?
A: Mathematically equivalent if applied at the same time, but monthly extras provide consistent principal reduction.

Q3: Do all loans allow extra payments?
A: Most do, but some may have prepayment penalties - check your loan terms.

Q4: Should I pay extra or invest the money?
A: Depends on your loan interest rate vs. expected investment returns and risk tolerance.

Q5: How much can I save with extra payments?
A: Use this calculator to see exact savings based on your loan details and planned extra payments.