The payment formula
Monthly payment = P × r ÷ (1 − (1 + r)−n), where P is the principal, r the monthly rate (APR ÷ 12) and n the number of months. Early payments are mostly interest; later payments are mostly principal.
How extra payments help
Every extra dollar goes straight to principal, which reduces the interest charged on every future month. On a 5-year, $25,000 loan at 7.5%, adding $100 a month pays it off 11 months sooner and saves about $1,000 in interest.
Affordability rule of thumb
Lenders look at debt-to-income: total monthly debt payments under roughly 36% of gross monthly income. On $55,300 a year ($4,608/month) that is about $1,660 a month across all debts.
Frequently asked questions
What is a good APR for a personal loan?
It depends on credit score and lender. Compare the APR (which includes fees) across at least three lenders before accepting.
Does paying extra reduce my monthly payment?
Usually not — it shortens the loan and cuts total interest. Some lenders will re-amortize on request.
Last reviewed October 21, 2026 by the 55300 editorial team. Read our methodology & sources.