Loan Calculator Adding Additional Payments

Loan Payment Formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Principal Amount (P):

USD

Annual Interest Rate:

Loan Term:

years

Additional Monthly Payment:

USD

Base Monthly Payment:

Total Monthly Payment (with additional):

Total Interest Paid:

Unit Converter ▲

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1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. The formula accounts for compound interest over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

\[ PMT = P \times \frac{r \times (1 + r)^n}{(1 + r)^n - 1} \]

Where:

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

Explanation: The formula calculates the fixed payment needed to pay off the loan over its term, with additional payments reducing the principal faster and decreasing total interest.

3. Importance of Additional Payments

Details: Even small additional payments can significantly reduce total interest paid and shorten the loan term. This calculator shows the impact of extra payments on your total cost.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, loan term in years, and any additional monthly payment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can additional payments save me?
A: Even $50-100 extra per month can save thousands in interest and shorten your loan term by years, depending on the loan amount and rate.

Q2: Should I pay extra principal or get a shorter term?
A: Paying extra gives flexibility (you can stop if needed), while a shorter term usually has a lower rate but requires higher mandatory payments.

Q3: How is the additional payment applied?
A: The calculator assumes extra payments go entirely toward principal, reducing the balance faster and thus the interest charged.

Q4: Are there loans where additional payments don't help?
A: Some loans have prepayment penalties or simple interest structures where extra payments don't reduce total cost. Always check your loan terms.

Q5: How accurate is this calculator?
A: It provides a close estimate, but actual payments may vary slightly due to rounding or specific lender policies.