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 and principal portion increasing over the life of the loan.

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)

Extra Payments: The calculator then applies any additional principal payments to reduce the loan balance faster, recalculating the amortization schedule accordingly.

3. Benefits of Extra Principal Payments

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

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term in years. Optionally add a monthly extra principal payment to see how it affects your loan payoff. 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 amount, interest rate, and size of extra payments. Even $50-100 extra per month can save thousands in interest.

Q2: Should I pay extra principal or invest?
A: This depends on your loan interest rate vs. expected investment returns. Paying down debt is a guaranteed return equal to your interest rate.

Q3: When do extra payments have the most impact?
A: Extra payments early in the loan term save the most interest since more of each payment goes toward interest at the beginning.

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

Q5: How do I make sure extra goes to principal?
A: Specify with your lender that extra payments should be applied to principal, not future payments.