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 charges and principal repayment, with the interest portion decreasing over time as the principal balance reduces.

2. How Extra Payments Affect Your Loan

Extra payments directly reduce your principal balance, which:

• Reduces the total interest paid over the life of the loan
• Shortens the loan term
• Increases the equity in your asset faster

3. Understanding the Calculation

The calculator uses these formulas:

Where:

• \( Interest_k \) — Interest portion of payment for period k
• \( Principal_k \) — Principal portion of payment for period k
• \( Balance_k \) — Remaining balance after period k
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( PMT \) — Regular monthly payment amount
• \( extra \) — Additional principal payment

4. Using the Calculator

Tips: Enter the loan amount, interest rate, loan term in years, and any additional monthly payment you plan to make. The calculator will show your amortization schedule and total interest savings.

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 shorten your loan term significantly.

Q2: Should I make extra payments or invest?
A: Compare your loan interest rate with potential investment returns. Paying off high-interest debt usually provides better guaranteed returns.

Q3: Are there prepayment penalties?
A: Some loans have prepayment penalties - check your loan agreement before making extra payments.

Q4: How often should I make extra payments?
A: Regular extra payments (monthly) have the greatest impact, but even annual lump sums help.

Q5: Should I refinance instead?
A: If you can get a significantly lower interest rate, refinancing might be better than extra payments.