1. What is the Loan Payment Formula?

The standard 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 over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Extra Payments: The calculator then applies any additional monthly payments to reduce the principal faster, recalculating the amortization schedule to show time and interest saved.

3. Benefits of Extra Repayments

Details: Making extra payments toward your principal can significantly reduce the total interest paid and shorten the loan term. Even small additional amounts can lead to substantial savings over time.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in years, and any additional monthly payment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Savings depend on the loan amount, interest rate, and size of extra payments. Even $50-$100 extra per month can save thousands in interest.

Q2: Should I pay extra or invest the money?
A: This depends on your loan interest rate vs. expected investment returns. Paying extra is a guaranteed return equal to your loan rate.

Q3: When is the best time to make extra payments?
A: Earlier in the loan term has the greatest impact, as more of your payment goes toward interest at the beginning.

Q4: Are there prepayment penalties?
A: Most modern loans don't have prepayment penalties, but check your loan agreement to be sure.

Q5: Can I make lump sum payments instead?
A: Yes, lump sum payments reduce principal the same way. This calculator focuses on regular extra payments.