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 (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months (term in years × 12)

Extra Payments: When extra payments are specified, the calculator recalculates the amortization schedule to show how much time and interest you can save.

3. Importance of Extra Payments

Details: Making extra payments toward principal can significantly reduce the total interest paid and shorten the loan term. Even small additional amounts can lead to substantial savings over time.

4. Using the Calculator

Tips: Enter the principal amount in USD, annual interest rate as a percentage, 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, which decreases total interest and can shorten your loan term significantly.

Q2: What's better: extra payments or shorter term?
A: Mathematically similar, but extra payments offer more flexibility if your financial situation changes.

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

Q4: Should I pay extra toward principal or invest?
A: Depends on your loan rate vs. expected investment returns. Paying off high-interest debt is usually better.

Q5: Are there prepayment penalties?
A: Some loans have penalties for early payoff. Check your loan terms before making extra payments.