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, 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 ($)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months in loan term

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off the loan exactly by the end of the term.

3. Importance of Amortization

Details: Understanding loan amortization helps borrowers see how much of each payment goes toward principal vs. interest, and how extra payments can significantly reduce total interest paid and loan term.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, loan term in years, and optional extra monthly payment. 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, decreasing total interest paid and potentially shortening the loan term significantly.

Q2: Should I pay extra toward principal?
A: If you can afford it, extra payments save money in the long run. Compare with potential investment returns to decide.

Q3: How is interest calculated?
A: Interest is calculated monthly on the remaining balance at the monthly interest rate.

Q4: What's the difference between term and amortization?
A: Term is the scheduled repayment period. Amortization is the process of paying off the loan through regular payments.

Q5: Can I see the full amortization schedule?
A: This calculator shows summary results. For a full schedule, use an amortization calculator with detailed output.