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 ensures the loan is paid off by the end of the term.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

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

For extra payments: The calculator applies additional payments directly to principal and recalculates the amortization schedule to show reduced term and interest savings.

3. Benefits of Extra Payments

Details: Making extra payments toward principal can significantly reduce 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 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 much can I save with extra payments?
A: Savings depend on loan size, interest rate, and extra payment amount. Even $50-100 extra per month can save thousands in interest.

Q2: Should I pay extra principal or refinance?
A: If your rate is already low, extra payments may be better than refinancing. Compare savings from both options.

Q3: When do extra payments have the most impact?
A: Extra payments early in the loan term save the most interest since more of each payment goes toward interest initially.

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

Q5: How do I make sure extra payments go to principal?
A: Specify "for principal reduction" when making payments and verify with your lender.