1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified 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 months (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

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

3. Importance of Additional Payments

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

4. Using the Calculator

Tips: Enter the loan 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 do extra payments affect my loan?
A: Extra payments reduce the principal faster, which decreases total interest paid and may shorten the loan term.

Q2: Should I pay extra toward principal or interest?
A: Always specify that extra payments should go toward principal, as this reduces future interest calculations.

Q3: How much can I save with extra payments?
A: Savings depend on loan amount, interest rate, and how much extra you pay. Even $50-100 extra per month can save thousands in interest.

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

Q5: Is it better to make extra payments or refinance?
A: This depends on current rates and how much you can afford. Extra payments are always beneficial, while refinancing may or may not save money.