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 provides the payment amount that covers both principal and interest.

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 payments (term in years × 12)

Extra Payments: Additional payments are applied directly to principal, reducing both the loan term and total interest paid.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce the loan term and total interest. This calculator shows the exact impact of additional principal payments.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Optionally add an extra monthly payment to see how it affects your loan. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: Should I pay extra each month or make lump sum payments?
A: Regular extra payments have a greater impact than occasional lump sums because they reduce principal faster and compound less interest.

Q3: Are there any penalties for extra payments?
A: Most loans allow extra payments, but some may have prepayment penalties. Check your loan terms before making extra payments.

Q4: Does this work for all types of loans?
A: This calculator works for standard fixed-rate amortizing loans (mortgages, auto loans, personal loans). It doesn't apply to credit cards or interest-only loans.

Q5: How accurate are these calculations?
A: The calculations are mathematically precise for fixed-rate loans. Actual results may vary slightly due to rounding or specific lender policies.