See How Fast Extra Payments Pay Off Your Loan
How Your Loan is Calculated
We use standard financial formulas to show how your regular payments work and the powerful impact of paying extra.
1. Your Base Monthly Payment
We calculate your initial monthly payment using the amortization formula, which creates a consistent payment over the loan term.
Formula:
M = P × [ r(1 + r)^n ] / [ (1 + r)^n - 1 ]- M = Your Monthly Payment
- P = Original Loan Amount (Principal)
- r = Monthly Interest Rate (Your APR ÷ 12)
- n = Total Number of Payments (Loan Term in Months)
2. How Each Payment is Applied
With each payment you make, the money is split two ways:
- Interest Fee = Your Current Loan Balance × Monthly Interest Rate
- Principal Paid = Your Monthly Payment – Interest Fee
This means you pay more toward interest at the beginning, and more toward the principal balance over time.
3. The Power of Paying Extra
- Extra Monthly Payments: Any amount you pay beyond your monthly minimum is directly deducted from your principal. This instantly reduces the balance used to calculate future interest, saving you money and shortening your loan term.
- Lump Sum Payment: A one-time large payment also cuts directly into your principal, delivering a significant reduction in your total interest cost.
Our Standards
This calculator is built on established financial principles and complies with common lending guidelines to provide reliable estimates.
Disclaimer: This is an educational tool for estimation purposes. Your actual loan terms may vary based on your specific lender agreement. Please consult with your financial institution for exact figures.