Add extra to monthly payment to pay off faster and save interest
What is a Loan Payment Calculator?
A loan payment calculator calculates your monthly loan payments, total interest, and generates an amortization schedule. It's essential for understanding the true cost of borrowing for mortgages, auto loans, student loans, and personal loans.
How Loan Payments Work
Each monthly payment consists of:
- Principal: The amount that reduces your loan balance
- Interest: The cost of borrowing money
In the early years, most of your payment goes toward interest. In later years, more goes toward principal. This is called amortization.
The Impact of Extra Payments
Even small extra payments can significantly reduce your total interest and payoff time. For example, on a $200,000 mortgage at 6.5% for 30 years, adding just $100 extra per month can save over $60,000 in interest and pay off the loan 5 years early.
Frequently Asked Questions
How is the monthly payment calculated?
The monthly payment is calculated using the amortization formula: M = P × [r(1 + r)^n] / [(1 + r)^n - 1], where P is the principal loan amount, r is the monthly interest rate, and n is the number of payments.
What is an amortization schedule?
An amortization schedule shows how each loan payment is split between principal and interest over the life of the loan. It helps you see how your loan balance decreases over time and how much interest you'll pay in total.
Why do early payments go mostly to interest?
Because interest is calculated based on your outstanding loan balance. In the beginning, your balance is highest, so more of each payment goes toward interest. As you pay down principal, less interest accrues, and more of your payment goes to principal.
How much do extra payments help?
Extra payments go entirely toward principal, reducing your balance faster. This means less interest accrues going forward. Even $100 extra monthly can save tens of thousands in interest and shorten your loan by several years.
What's the difference between APR and interest rate?
The interest rate is the cost of borrowing money. The APR (Annual Percentage Rate) includes the interest rate plus fees like origination fees and closing costs. APR gives you the true cost of borrowing and allows comparison between lenders.
About This Calculator
Frequently Asked Questions
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