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. The formula accounts for both principal and interest payments.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula calculates the fixed payment that pays off the loan exactly over the term, accounting for compound interest.

3. Importance of Extra Payments

Details: Making extra payments reduces the principal faster, decreasing total interest paid and potentially shortening the loan term significantly.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Add any planned extra monthly payment to see how it affects your total payment and loan payoff.

5. Frequently Asked Questions (FAQ)

Q1: How much can extra payments save me?
A: Even small extra payments can save thousands in interest and reduce the loan term by years, depending on the loan amount and rate.

Q2: Should I make extra payments or invest instead?
A: This depends on your loan rate vs. expected investment returns. Paying off higher-interest debt usually makes financial sense.

Q3: Are there prepayment penalties?
A: Most modern loans don't have prepayment penalties, but check your loan terms to be sure.

Q4: How do extra payments affect amortization?
A: Extra payments go entirely toward principal, accelerating equity buildup and reducing future interest.

Q5: Is it better to make biweekly payments?
A: Biweekly payments (half the monthly amount every 2 weeks) result in 13 full payments per year, which can significantly reduce loan term.