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 provides an accurate payment amount.

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 (USD)

Explanation: The formula calculates the fixed payment that covers both principal and interest each month, with more going toward interest early in the loan.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest paid and shorten the loan term. Extra payments are applied directly to principal after covering the monthly interest.

4. Using the Calculator

Tips: Enter the loan amount, interest rate, and term. Add any planned extra monthly payment to see its impact. 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, rate, and extra amount. Even $50/month extra can save thousands and cut years off a mortgage.

Q2: Should I pay extra or invest?
A: Compare loan interest rate to expected investment returns. Paying extra gives a guaranteed return equal to your interest rate.

Q3: When do extra payments have the most impact?
A: Early in the loan when interest costs are highest. Making extra payments in the first few years has the biggest effect.

Q4: Are there prepayment penalties?
A: Most loans don't have them, but check your terms. Some mortgages limit how much extra you can pay annually.

Q5: How do I make sure extra goes to principal?
A: Specify "for principal reduction" when paying. Some lenders require this in writing or a separate payment.