Question 1

How is my monthly loan payment calculated?

Accepted Answer

Monthly payments are calculated using the amortization formula which considers your loan amount, interest rate, and loan term. The formula ensures each payment covers interest accrued plus a portion of principal, with payments staying constant throughout the loan term.

Question 2

How much can I save by making extra payments?

Accepted Answer

Extra payments go directly toward principal, reducing your balance faster and the total interest paid. Even small extra payments can save thousands. This calculator shows exactly how much interest you'll save and how much sooner you'll pay off the loan.

Question 3

Should I make extra payments or invest the money instead?

Accepted Answer

Compare your loan interest rate to potential investment returns. If your loan rate is 6% and you expect 8% investment returns, investing may be better mathematically. However, paying off debt provides guaranteed 'returns' equal to your interest rate and psychological benefits of being debt-free.

Question 4

What's the difference between loan term and amortization?

Accepted Answer

Loan term is the length of your loan (e.g., 5 years). Amortization is the schedule showing how each payment is split between principal and interest over time. Early payments are mostly interest; later payments are mostly principal.

Question 5

Is it better to get a shorter or longer loan term?

Accepted Answer

Shorter terms mean higher monthly payments but much less total interest. Longer terms mean lower monthly payments but more interest over time. This calculator helps you compare scenarios to find the right balance for your budget and goals.