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. When you make a part prepayment, the calculator adjusts the remaining balance and recalculates the payment.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

For prepayment calculation: The calculator first determines the remaining balance at the prepayment month, subtracts the prepayment amount, then recalculates the payment for the remaining term.

3. Importance of Prepayment Calculation

Details: Understanding how prepayments affect your loan helps you save on interest and potentially shorten your loan term. This calculator shows the impact of making additional payments.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, and loan term. For prepayment calculation, specify the additional payment amount and after which month you'll make it.

5. Frequently Asked Questions (FAQ)

Q1: How does prepayment affect my loan?
A: Prepayment reduces your principal balance, which can either lower your monthly payments or shorten your loan term, depending on the lender's policies.

Q2: Are there prepayment penalties?
A: Some loans have prepayment penalties. Check your loan agreement before making additional payments.

Q3: Should I reduce my payment or loan term?
A: Reducing the term saves more interest overall, while lowering payments improves monthly cash flow.

Q4: How often can I make prepayments?
A: This depends on your loan terms. Some lenders allow unlimited additional payments, others restrict them.

Q5: Does this calculator account for compounding?
A: Yes, the standard loan formula accounts for monthly compounding of interest.