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Loan with Extra Payments Formula:
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The loan with extra payments formula calculates how much faster you can pay off a loan by making additional payments each month. It determines the new loan term (n) in months based on your regular payment, extra payment, loan amount, and interest rate.
The calculator uses the following formula:
Where:
Explanation: The formula calculates how the extra payments reduce the principal faster, thereby decreasing the total interest paid and shortening the loan term.
Details: Calculating the impact of extra payments helps borrowers understand how much they can save in interest and how quickly they can become debt-free by making additional payments.
Tips: Enter your regular monthly payment, any additional payment you plan to make, the original loan amount, and the monthly interest rate (annual rate divided by 12). All values must be positive numbers.
Q1: How much can extra payments shorten my loan term?
A: Even small extra payments can significantly reduce your loan term. For example, adding $100 to a $200,000 mortgage payment might shorten a 30-year loan by several years.
Q2: Is it better to make extra payments or refinance?
A: This depends on your interest rate and how much you can afford in extra payments. Use this calculator to compare scenarios.
Q3: Should I apply extra payments to principal or interest?
A: Extra payments typically go toward principal, which reduces the amount of interest you'll pay over the life of the loan.
Q4: Are there any penalties for paying off a loan early?
A: Some loans have prepayment penalties. Check your loan agreement before making extra payments.
Q5: How does this differ from a regular loan calculator?
A: This specifically calculates the impact of making additional payments beyond your required monthly payment.