1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing over time as the principal is paid down.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

Extra Payments: The calculator adjusts the amortization schedule to account for additional principal payments each month, showing how they reduce both the loan term and total interest paid.

3. Importance of Extra Payments

Details: Making extra payments toward principal can significantly reduce both the loan term and total interest paid. Even small additional amounts can lead to substantial savings over time.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Add any planned extra monthly payments to see how they affect your payoff timeline and total interest.

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 or invest the money?
A: This depends on your loan interest rate vs. expected investment returns. Paying off high-interest debt (typically >5-6%) often makes financial sense.

Q3: Do extra payments immediately reduce my balance?
A: Yes, extra payments directly reduce principal, which then reduces future interest calculations.

Q4: Can I make lump sum payments instead?
A: Yes, lump sum payments have a similar effect to regular extra payments, though timing affects total savings.

Q5: Are there prepayment penalties?
A: Most loans don't have prepayment penalties, but check your loan agreement to be sure.