1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including both principal and interest. The formula accounts for compounding interest over the life of the loan.

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

Extra Payments: The calculator also shows how additional monthly payments can reduce both the loan term and total interest paid.

3. Importance of Loan Calculation

Details: Understanding your exact loan payments helps with budgeting and shows the significant savings possible through extra payments. Even small additional amounts can dramatically reduce total interest costs.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and term in years. Optionally add an extra monthly payment to see potential savings. 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 and can shorten the loan term significantly.

Q2: Should I pay extra principal or invest?
A: Compare your loan interest rate with potential investment returns. Paying off high-interest debt usually provides better guaranteed returns.

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

Q4: How is interest calculated monthly?
A: Each month's interest = (remaining balance) × (monthly rate). The rest of your payment goes to principal.

Q5: Why does my actual payment differ slightly?
A: Lenders may use slightly different rounding methods or add fees/insurance to payments.