1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term. The formula accounts for compound interest and provides an amortization schedule when broken down by month.

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)

Extra Payments: The calculator also shows how additional monthly payments reduce both the loan term and total interest paid.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce the total interest paid and shorten the loan term. This calculator demonstrates the power of paying more than the minimum required payment.

4. Using the Calculator

Tips: Enter the loan principal, annual interest rate, loan term in years, and optional extra monthly payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments are applied directly to principal, reducing both the total interest and the time needed to pay off the loan.

Q2: Should I pay extra each month or make lump sum payments?
A: Regular extra payments have a greater impact than occasional lump sums because they reduce principal consistently over time.

Q3: Are there penalties for extra payments?
A: Most loans allow extra payments without penalty, but some mortgages have prepayment penalties - check your loan terms.

Q4: How much can I save with extra payments?
A: Even $50-$100 extra per month can save thousands in interest and cut years off a typical 30-year mortgage.

Q5: Does the calculator account for changing interest rates?
A: No, this calculator assumes a fixed interest rate for the entire loan term.