1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term, including both principal and interest components.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Extra Payments: The calculator then applies your additional monthly payment to reduce the principal faster, recalculating the payoff timeline and total interest.

3. Benefits of Extra Payments

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

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, 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 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 refinance?
A: Compare options - sometimes paying extra is better than refinancing, especially if you're already at a low rate or near the end of your term.

Q3: Are there prepayment penalties?
A: Most loans don't have them, but check your loan agreement. Some mortgages have penalties for early payoff in the first few years.

Q4: How do extra payments affect amortization?
A: Each extra dollar goes entirely toward principal, reducing future interest calculations and accelerating payoff.

Q5: Is it better to make biweekly payments?
A: Making half-payments every two weeks (26 payments/year = 13 full payments) can payoff a 30-year mortgage in about 22-24 years.