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

With Extra Payments: The calculator also shows how additional payments reduce the principal faster, saving interest and shortening the loan term.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest paid and shorten the loan term. Early extra payments have the greatest impact as they reduce principal before much interest accumulates.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Add any planned extra monthly payment to see its impact. 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 size, interest rate, and amount of extra payment. Even $50-100 extra per month can save thousands in interest.

Q2: Should I pay extra principal or invest?
A: Compare your loan interest rate to potential investment returns. Paying off high-interest debt usually offers better guaranteed returns.

Q3: Do all loans allow extra payments?
A: Most do, but some may have prepayment penalties. Check your loan terms before making extra payments.

Q4: When is the best time to make extra payments?
A: Earlier is better, as more of your regular payment goes toward interest in the early years.

Q5: How do I specify the extra goes to principal?
A: Many lenders require you to designate extra payments as principal-only. Check with your lender about their process.