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

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that pays off both principal and interest.

3. Importance of Extra Payments

Details: Making extra payments directly reduces the principal balance, which decreases total interest paid and can significantly shorten the loan term.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in years, and any additional monthly payment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments reduce principal faster, saving interest and potentially shortening your loan term by months or years.

Q2: Should I pay extra principal or refinance?
A: This depends on current rates - compare savings from extra payments versus refinancing to a lower rate.

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

Q4: How much can I save with extra payments?
A: Even small extra payments can save thousands in interest over the life of a loan.

Q5: Should I pay extra or invest instead?
A: Compare your loan interest rate to expected investment returns - paying off high-interest debt usually comes first.