1. What is the Installment Loan Payment Formula?

The installment loan payment formula calculates the fixed monthly payment required to pay off 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 loan payment formula:

Where:

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

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, which decreases total interest paid and can significantly shorten the loan term.

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 loan.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Even small extra payments can save thousands in interest and reduce your loan term by years, especially early in the loan.

Q2: Should I pay extra principal or get a shorter term?
A: Paying extra gives flexibility; a shorter term has lower rates but requires higher mandatory payments.

Q3: When do extra payments have the most impact?
A: Early in the loan when more of your payment goes toward interest rather than principal.

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

Q5: How do I specify extra payments go to principal?
A: You may need to indicate this to your lender, as some apply extra payments to future payments rather than principal.