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 both principal and interest components.

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 monthly payments (term in years × 12)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest.

3. Importance of Extra Payments

Details: Extra payments applied directly to principal 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 any additional monthly payment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: Should I pay extra or invest?
A: Compare the loan interest rate with potential investment returns. Paying off high-interest debt usually provides better guaranteed returns.

Q3: Are there prepayment penalties?
A: Some loans have prepayment penalties - check your loan agreement before making extra payments.

Q4: How are extra payments applied?
A: Extra payments typically go directly to principal, reducing the balance faster and thus the interest accrued.

Q5: What's better - extra payments or shorter term?
A: Mathematically similar, but shorter terms often have lower rates. Extra payments provide more flexibility if finances change.