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. The formula accounts for both principal and interest payments.

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 monthly payments (term in years × 12)

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

3. Importance of Extra Payments

Details: Making extra payments 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 loan amount, annual interest rate, loan term in years, and optional extra payment amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments reduce principal directly, which reduces future interest and may shorten your loan term.

Q2: Should I pay extra principal or get a shorter term?
A: Paying extra gives flexibility; shorter terms usually have lower rates but require higher mandatory payments.

Q3: How much can I save with extra payments?
A: Savings depend on loan amount, rate, term, and extra payment amount. Even $50/month can save thousands.

Q4: Are there penalties for extra payments?
A: Most loans allow extra payments, but some have prepayment penalties - check your loan terms.

Q5: When is the best time to make extra payments?
A: Earlier payments save more interest since more of your payment goes toward interest early in the loan.