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, including both principal and interest components.

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 (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Extra Payment Calculation: The calculator also shows how additional monthly payments affect the loan term and total interest paid.

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 $200,000 mortgage could save tens of thousands 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 the principal faster, decreasing both the loan term and total interest paid.

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

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

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

Q5: When is the best time to make extra payments?
A: Early in the loan term saves the most interest, but extra payments are beneficial at any time.