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. The formula accounts for both principal and interest payments.

2. How Does the Calculator Work?

The calculator uses the 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)

Explanation: The formula calculates the fixed payment that pays off the loan exactly over the term, accounting for compound interest.

3. Importance of Extra Payments

Details: Making extra payments directly reduces the principal, which decreases both the total interest paid and the loan term. Even small extra payments can lead to significant savings over time.

4. Using the Calculator

Tips: Enter the loan amount in USD, annual interest rate as a percentage, loan term in years, and optional extra monthly payment. 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: If your current rate is low, extra payments may be better. If rates have dropped significantly, refinancing might save more.

Q3: When do extra payments have the most impact?
A: Early in the loan term when more of your payment goes toward interest rather than principal.

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

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