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. It accounts for both principal and interest components of the payment.

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 monthly payments (term in months)
• \( PMT \) — Monthly payment amount (USD)

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

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce the loan term and total interest paid, often saving thousands of dollars over the life of the loan.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, loan term in months, 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 the principal faster, which decreases total interest and shortens the loan term.

Q2: Should I pay extra principal or get a shorter term?
A: Mathematically similar, but extra payments offer more flexibility if your financial situation changes.

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

Q4: Are there prepayment penalties?
A: Most loans don't have them, but check your loan agreement to be sure.

Q5: When is the best time to make extra payments?
A: The earlier you make them, the more you'll save, but any time helps reduce total interest.