1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including interest. Adding extra payments reduces both the loan term and total interest paid.

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)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount

Extra Payments: Any additional payment is added to the base payment to calculate the total monthly payment.

3. Importance of Extra Payments

Details: Making extra payments reduces the principal faster, decreasing both the loan term and total interest paid. Even small extra payments can have significant long-term effects.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments directly reduce principal, shortening the loan term and reducing total interest.

Q2: Should I pay extra principal or get a shorter term?
A: Extra payments offer flexibility; shorter terms usually have lower rates but require higher mandatory payments.

Q3: How much can I save with extra payments?
A: Savings depend on loan amount, rate, and extra payment size. Even $50/month can save thousands on a mortgage.

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

Q5: Should I pay off debt or invest extra money?
A: Depends on interest rates and investment returns. Generally prioritize high-interest debt repayment first.