1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to pay off a loan over a specified term, including interest. The formula accounts for compound interest over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

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

Extra Payments: Any additional payment amount is added directly to the principal portion of the monthly payment, reducing both the loan term and total interest paid.

3. Importance of Extra Payments

Details: Making extra payments toward principal can significantly reduce the total interest paid over the life of the loan 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 in USD, annual interest rate as a percentage, 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 the principal faster, which decreases total interest paid and may shorten the loan term.

Q2: Should I make extra payments or invest the money?
A: This depends on your loan interest rate vs. expected investment returns. Generally, pay off high-interest debt first.

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

Q4: How much can I save with extra payments?
A: The savings depend on the loan amount, interest rate, and size of extra payments. This calculator shows the impact.

Q5: Should extra payments be applied to principal or interest?
A: Always specify that extra payments should be applied to principal for maximum benefit.