See How Extra Payments Reduce Your Loan Time and Interest
How the Calculations Work
Monthly Payment Formula
Your monthly payment is computed using the standard loan amortization formula:
M = P × [ r(1 + r)ⁿ ] / [ (1 + r)ⁿ – 1 ]
Where:
- M = Monthly payment amount
- P = Loan principal
- r = Monthly interest rate (APR ÷ 12)
- n = Number of monthly installments
How Interest Is Applied
During each payment cycle:
- Interest Charged = Current balance × monthly interest rate
- Principal Paid = Monthly payment – interest
- New Balance = Previous balance – principal paid
How Extra Payments Affect the Loan
Any additional amount you pay goes straight toward the remaining principal. This lowers the balance faster, reduces total interest over time, and shortens the overall loan length due to the compounding effect.
Effect of a Lump-Sum Payment
Making one large payment at any point immediately cuts down the outstanding principal. This decreases all future interest charges and accelerates payoff.
Sources & Standards
- Based on widely accepted amortization practices
- Follows guidance from the Consumer Financial Protection Bureau (CFPB)
- Aligned with general loan calculation standards used by financial institutions
Disclaimer:
This tool provides approximate results based on your inputs. Actual loan figures may differ depending on lender terms, additional fees, and specific policies. Please confirm details with your lender.