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 compound interest and principal reduction with each payment.

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 months (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Extra Payments: Any additional payment amount is added to the regular payment and applied directly to principal reduction.

3. Importance of Extra Payments

Details: Making extra payments can significantly reduce total interest paid and shorten the loan term. Even small additional amounts can have a large impact over time.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in years, and optional extra payment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can extra payments save?
A: Depending on loan size and term, extra payments can save thousands in interest and reduce the term by years.

Q2: Should I pay extra principal or refinance?
A: Compare savings from extra payments versus refinancing costs. Often extra payments provide better returns.

Q3: When is the best time to make extra payments?
A: Earlier in the loan term has the greatest impact, but any time helps.

Q4: Are there prepayment penalties?
A: Some loans have penalties - check your loan agreement before making extra payments.

Q5: How are extra payments applied?
A: Lenders typically apply extra amounts directly to principal after paying the scheduled interest.