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 interest. The formula accounts for compound interest and amortization of the principal.

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)

Extra Payments: The calculator also shows the impact of making additional monthly payments, which reduces both the loan term and total interest paid.

3. Importance of Loan Calculation

Details: Understanding your loan payments helps with budgeting and financial planning. Extra payments can significantly reduce total interest costs and shorten the loan term.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in years, and optional extra monthly payment. 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 each month or make a lump sum payment?
A: Regular extra payments typically save more interest than occasional lump sums because they reduce the principal continuously.

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

Q4: How does interest rate affect my payments?
A: Higher rates increase both monthly payments and total interest paid over the life of the loan.

Q5: What's better - shorter term or extra payments?
A: A shorter term usually has a lower rate but higher required payments. Extra payments offer flexibility to pay more when you can.