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 both principal and interest payments.

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 payments (term in years × 12)
• \( PMT \) — Monthly payment amount (USD)

Extra Payments: Any additional payment reduces the principal directly, saving interest and shortening the loan term.

3. Importance 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 have a large impact over time.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, loan term in years, and optional extra monthly payment. All monetary values should be in USD.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Savings depend on the loan amount, interest rate, and size of extra payments. Even $50-100 extra per month can save thousands in interest.

Q2: Should I pay extra principal or invest?
A: This depends on your loan rate vs. expected investment returns. Paying down debt is a guaranteed return equal to your interest rate.

Q3: When is the best time to make extra payments?
A: Earlier in the loan term has the greatest impact, as 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 agreement to be sure.

Q5: How do I ensure extra goes to principal?
A: Specify with your lender that the extra payment should be applied to principal, not future payments.