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 loan payment formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of payments (loan term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Extra Payments: The calculator also shows how additional payments reduce the principal faster, saving interest and shortening the loan term.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest paid and shorten the loan term. This calculator demonstrates the power of paying more than the minimum payment.

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 do extra payments affect my loan?
A: Extra payments go directly toward principal, reducing the balance faster and saving interest over the life of the loan.

Q2: Should I pay extra each month or make lump sum payments?
A: Regular extra payments have the greatest impact, but any extra payment helps. The key is consistency.

Q3: How much can I save with extra payments?
A: Savings depend on the loan amount, interest rate, and how much extra you pay. This calculator shows exact savings.

Q4: Are there prepayment penalties?
A: Most loans don't have prepayment penalties, but check your loan agreement to be sure.

Q5: Should I refinance or make extra payments?
A: If your rate is high, refinancing might be better. If your rate is low, extra payments may be more beneficial.