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 loan.

2. How Does the Calculator Work?

The calculator uses the standard amortization formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Number of months in loan term
• \( PMT \) — Monthly payment amount (USD)

Extra Payments: The calculator also shows the impact of making additional payments each month, including interest savings and reduced loan term.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest paid and shorten the loan term. This calculator helps visualize these savings.

4. Using the Calculator

Tips: Enter the principal amount, annual interest rate, loan term in years, and any planned extra monthly payment. All values must be valid positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: Should I pay extra principal or refinance?
A: This depends on your interest rate and financial goals. Use this calculator to compare options.

Q3: Are there prepayment penalties?
A: Most student loans don't have prepayment penalties, but check your loan terms to be sure.

Q4: How much can I save with extra payments?
A: Even $50-100 extra per month can save thousands in interest and cut years off your loan term.

Q5: Does this work for all loan types?
A: This calculator works best for standard amortizing loans (like student loans), not credit cards or interest-only loans.