1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully amortize a loan over its term. The formula accounts for compound interest and provides a consistent payment amount each month.

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

Extra Payments: The calculator also shows the impact of additional payments by applying them directly to principal, reducing both the loan term and total interest paid.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce the total interest paid and shorten the loan term. This calculator demonstrates the power of paying more than the minimum payment.

4. Using the Calculator

Tips: Enter the loan principal, annual interest rate, and term in years. Optionally add an extra monthly payment to see how it affects your amortization schedule.

5. Frequently Asked Questions (FAQ)

Q1: How do extra payments affect my loan?
A: Extra payments reduce principal faster, which decreases total interest and may shorten your loan term.

Q2: Should I pay extra toward principal or interest?
A: Always specify that extra payments should go toward principal to maximize savings.

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 student loans don't have prepayment penalties, but check your loan terms to be sure.

Q5: Is it better to pay extra or refinance?
A: It depends on your rate. If you can refinance to a much lower rate, that might be better than extra payments on a high-rate loan.