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 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 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 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 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 principal or invest?
A: This depends on your loan interest rate vs. expected investment returns. Paying off high-interest debt usually makes financial sense first.

Q3: Are there prepayment penalties?
A: Some loans have prepayment penalties. Check your loan agreement before making extra payments.

Q4: How are extra payments applied?
A: Typically applied directly to principal, reducing the balance faster and thus the interest accrued.

Q5: Can I change extra payment amounts?
A: Yes, most loans allow variable extra payments. This calculator assumes consistent extra payments.