1. What is Loan Prepayment Calculator?

The Loan Prepayment Calculator estimates your monthly payment after making a lump sum prepayment toward your principal. It helps you understand how extra payments can reduce your monthly obligations.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( P \) — Adjusted principal amount (original principal minus lump sum)
• \( r \) — Monthly interest rate (annual rate ÷ 12 ÷ 100)
• \( n \) — Total number of payments (term in years × 12)
• \( PMT \) — Monthly payment amount

Explanation: The formula calculates the fixed payment required to fully amortize a loan over its term, considering the time value of money.

3. Importance of Loan Prepayment

Details: Making lump sum prepayments can significantly reduce your monthly payments or shorten your loan term, saving you money on interest over time.

4. Using the Calculator

Tips: Enter the original loan amount, annual interest rate, loan term in years, and any lump sum prepayment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does a lump sum payment affect my loan?
A: A lump sum payment reduces your principal, which either lowers your monthly payments (if keeping the same term) or shortens your loan term (if keeping the same payment).

Q2: Is it better to make a lump sum payment or extra monthly payments?
A: Both strategies reduce total interest, but lump sums provide immediate principal reduction while extra monthly payments compound over time.

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

Q4: How accurate is this calculator?
A: It provides a good estimate for fixed-rate loans. For adjustable-rate or more complex loans, consult your lender.

Q5: Does the calculator account for taxes and insurance?
A: No, this calculates principal and interest only. Your actual payment may include escrow for taxes and insurance.