1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to repay a loan over a specified 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 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 years × 12)

With Extra Payments: The calculator adds any additional monthly payment to the calculated PMT to show the accelerated payoff scenario.

3. Importance of Extra Payments

Details: Making extra payments toward your loan 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 in USD, annual interest rate in percent, 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 do extra payments affect my loan?
A: Extra payments reduce the principal faster, which decreases total interest and may shorten the loan term.

Q2: Should I specify extra payments go toward principal?
A: Yes, always request extra payments be applied to principal to maximize their benefit.

Q3: How much can I save with extra payments?
A: Savings depend on loan amount, rate, and term. Even $50-100 extra per month can save thousands over a 30-year mortgage.

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

Q5: Is it better to make extra payments or refinance?
A: It depends on current rates. If you can refinance at a significantly lower rate, that may be better than extra payments on a higher-rate loan.