1. What is the Interest Savings Formula?

The Interest Savings Formula calculates the total interest saved by applying savings to car loan repayment. It helps borrowers understand how much they can save by making additional payments toward their loan principal.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( EMI \) — Equated Monthly Installment (currency)
• \( N \) — Number of monthly payments
• \( P \) — Principal loan amount (currency)
• \( I \) — Total interest saved (currency)

Explanation: This formula calculates the difference between the total amount paid (EMI × N) and the original principal, which represents the interest saved when applying additional payments.

3. Importance of Interest Calculation

Details: Understanding interest savings helps borrowers make informed decisions about loan repayment strategies, potentially saving significant amounts of money over the loan term.

4. Using the Calculator

Tips: Enter your monthly EMI payment, the number of payments you plan to make, and the original principal amount. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does making extra payments save interest?
A: Extra payments reduce the principal balance faster, which decreases the amount of interest that accrues over the remaining loan term.

Q2: Should I prioritize paying off high-interest debt first?
A: Generally yes, paying off high-interest debt typically provides the best financial return compared to other uses of extra money.

Q3: Are there any penalties for early loan repayment?
A: Some loans have prepayment penalties. Check your loan agreement before making extra payments.

Q4: How often should I make extra payments?
A: Regular extra payments, even small ones, can significantly reduce total interest paid over the loan term.

Q5: Does this calculation account for compound interest?
A: This is a simplified calculation. For precise results, consult with your lender or use a detailed amortization calculator.