1. What is Loan Amortization?

Loan amortization is the process of paying off a debt over time through regular payments. Each payment covers both interest and principal, with the interest portion decreasing and principal portion increasing over the life of the loan.

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

Extra Payments: Any additional payment is applied directly to the principal, reducing both the total interest paid and the loan term.

3. Importance of Extra Payments

Details: Making extra payments can significantly reduce the 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 payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: The 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: Compare the loan interest rate with potential investment returns. Paying off high-interest debt usually provides better guaranteed returns.

Q3: When is the best time to make extra payments?
A: Earlier in the loan term has the greatest impact, but extra payments are beneficial at any time.

Q4: Are there prepayment penalties?
A: Some loans have prepayment penalties - check your loan agreement before making extra payments.

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