Data Source and Methodology
The calculator follows the Truth in Lending (Regulation Z) Appendix J methodology for closed-end credit. Monthly payments use level-payment amortization where the periodic rate is APR divided by 12. When you add extra payments, the tool simulates the loan month by month, applying each extra amount to principal to compute savings and the new payoff date.
Formulas Used
Periodic rate: \( r = \dfrac{\text{APR}}{12} \)
Payment amount: \( M = \dfrac{P \cdot r}{1 - (1 + r)^{-n}} \) (if \(r > 0\); otherwise \(M = P / n\))
Interest per period: \( \text{Interest}_t = B_{t-1} \cdot r \)
Principal with extra \(E\):\) \( \text{Principal}_t = \min\!\big(M + E - \text{Interest}_t,\; B_{t-1}\big) \)
Balance update: \( B_t = \max\!\big(B_{t-1} - \text{Principal}_t,\; 0\big) \)
Worked Example
Borrow $10,000 at 11% APR for 36 months with a 5% origination fee paid upfront and $50 extra per month:
- Scheduled payment (no extra) ≈ $327.37.
- Financed principal remains $10,000, but cash disbursed is $9,500 after the fee.
- With $50 extra per month, payoff occurs roughly 2 months sooner.
- Total interest drops from ≈ $1,861 to ≈ $1,726, saving ≈ $135.