1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment (EMI) required to repay a loan over a specified 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:

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

Extra Payments: The calculator adds any extra payment you specify to the regular payment, showing the total monthly amount you would pay.

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 in years. Optionally add an extra monthly payment to see how it affects your total payment.

5. Frequently Asked Questions (FAQ)

Q1: How much can extra payments save?
A: Even small extra payments can save thousands in interest and reduce the loan term by years.

Q2: Should I pay extra principal or invest?
A: Compare your loan interest rate with potential investment returns. Paying down high-interest debt often provides better guaranteed returns.

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

Q4: How do extra payments affect amortization?
A: Extra payments reduce principal faster, causing more of each subsequent payment to go toward principal rather than interest.

Q5: Is it better to make biweekly payments?
A: Biweekly payments (half the monthly amount every 2 weeks) result in 26 half-payments per year (13 full payments), which can significantly reduce loan term.