Loan Calculator

How your monthly payment is calculated

The monthly payment on a fixed-rate loan comes from the amortization formula: M = P x r(1+r)^n / ((1+r)^n − 1), where P is the principal, r the monthly rate, n the number of payments. For $25,000 at 7% over 5 years (60 months): r = 0.07/12 = 0.005833, (1.005833)^60 = 1.4176, so M = 25,000 x 0.005833 x 1.4176 / 0.4176 = $495.03/month. Total paid: $29,702 — interest $4,702.

Three levers move the payment: principal (linear — borrow 10% less, pay 10% less), rate (powerful — see below), and term (trades monthly payment against total interest). The formula assumes a fixed rate and fixed payment; variable-rate loans recalculate as rates change.

Rate sensitivity is brutal: on $25,000 over 5 years, each 1% of rate costs roughly $700 in total interest (6% → $3,999; 7% → $4,702; 8% → $5,416). That’s why a 0.5% rate improvement from shopping lenders is worth ~$350 — often more than a month of payments. Your credit score is the main rate lever: the gap between “good” (670) and “excellent” (800) can be 1–2% on auto loans, worth thousands.

If the nominal rate compounds non-monthly (common outside the US — Canadian mortgages compound semi-annually, for example), the monthly periodic rate is (1 + nominal/m)^(m/12) − 1. A 7% nominal rate compounding quarterly gives a monthly rate of (1.0175)^(1/3) − 1 = 0.5800% versus 0.5833% monthly-compounded — payment $494.55 vs $495.03. Small per month, but use the selector above to match your loan’s terms exactly.

Repayment: what a loan really costs

Repayment is everything you hand back: the principal you borrowed plus every dollar of interest. This page doubles as a loan repayment calculator — set the amount, rate and term, and the Total cost figure shows the full repayment, not just the monthly slice of it. Lenders lead with the monthly payment because it looks small; the repayment total is the number that decides whether a loan is cheap or expensive.

Worked example — a monthly payment calculator in action: borrow $10,000 at 8% for 36 months and the payment is $313.36/month. Over the 3 years you repay $11,281.09 in total, of which $1,281.09 is interest. Stretch the same loan to 60 months and the payment drops to $202.76 — but total interest climbs to $2,165.84, so you repay $884.75 more for exactly the same $10,000.

Three things set your repayment total: how much you borrow, the rate, and how long you take to repay. Of the three, the term is the lever most borrowers control — and the one lenders most like to stretch, because a longer term shrinks the payment while growing the interest. The math is identical wherever the money comes from — a national bank, a local credit union or an online lender — which is why this page also works as a bank loan calculator for any bank loan offer: enter the bank’s amount, rate and term, then compare its total repayment against the next offer rather than its monthly payment.

Repayment vs payoff: the repayment schedule assumes you pay exactly on time through the final month. Your payoff amount — what it costs to end the loan today — is the remaining balance plus interest accrued since the last payment, which is why a payoff quote is always slightly higher than the balance alone. Every extra payment moves the payoff date closer and cuts the total repayment.

Interest on a loan: simple vs amortizing

Interest is the rent you pay on borrowed money, and it comes in two structures. Simple interest is charged only on the original principal: interest = principal × rate × time. Borrow $10,000 at 8% simple interest for 3 years and the interest is $2,400, however you repay it. Some short-term and auto loans are quoted this way (often called add-on interest): repaid monthly, that loan costs $344.44/month — noticeably more than the amortizing payment below, because you keep paying interest on money you have already handed back.

Amortizing interest — the structure behind mortgages, most personal loans and the calculator above — is charged only on the balance still owed. Each month’s interest is balance × annual rate ÷ 12, so it shrinks as you repay: on the $10,000 loan at 8%, month 1 interest is $66.67 and the final month’s is just $2.08. Total amortizing interest comes to $1,281.09 — barely half the simple-interest figure on identical headline numbers. That is why knowing how to calculate interest on a loan, and which structure a lender is using, matters more than a small difference in the quoted rate.

An interest calculator for a loan earns its keep on one line: the total interest over the full term. Compare that line for the same amount and term across offers, and the cheaper structure wins. If you want a dedicated tool that isolates interest on its own, try our Interest Calculator.

Amortization: why early payments are mostly interest

Each payment splits into interest (balance x monthly rate) and principal (the rest). On that $25,000/7%/5yr loan, month 1: interest = 25,000 x 0.005833 = $145.83, principal = 495.03 − 145.83 = $349.20. Month 60: interest = $2.87, principal = $492.16. Same payment, completely different split.

This front-loading is why extra payments early matter most: every extra dollar in month 1 skips interest on that dollar for all 60 months (saving $0.42), while an extra dollar in month 59 saves almost nothing. The amortization table above shows the yearly split — watch interest dominate early years.

It also explains refinancing math: refinancing “restarts the clock” on amortization. If you’re 3 years into a 30-year mortgage and refinance into a new 30-year loan, you re-enter the interest-heavy phase — the lower rate must overcome the reset amortization to save money. Compare total interest, not just monthly payment.

The reset trap quantified: 3 years into a $300,000/6.5%/30yr mortgage, balance is ~$289,000 and you’ve paid ~$57,500 in interest. Refinance to 6.0%/30yr: payment drops $1,896 → $1,734 (saves $162/mo), but total remaining interest becomes $335,000 versus $325,000 staying put — you lose ~$10,000 despite the lower rate, because amortization restarted. Refinance into a 25-year term instead: payment $1,864, total interest $270,000 — saves ~$55,000. Match or shorten the remaining term when refinancing.

Extra payments: the highest guaranteed return

Paying $100 extra/month on the $25,000/7%/5yr loan: payoff drops from 60 to 49 months (11 months early) and total interest falls from $4,702 to $3,763 — saving $939. That’s an 11-month shortcut for $4,900 in extra payments, a guaranteed 7% return on each extra dollar.

The one-extra-payment-per-year trick: 13 “monthly” payments yearly (e.g., biweekly half-payments = 26 halves = 13 full payments). On a 30-year $300,000 mortgage at 6.5%, one extra payment yearly cuts the term to ~24 years and saves roughly $84,000 in interest. Biweekly schedules automate this.

Biweekly math: 26 half-payments = 13 full payments yearly, so you pay an extra $1,896/year on the mortgage above. But beware third-party biweekly scams — companies charging setup fees for what your lender does free with autopay. Just set your own extra-principal autopay; never pay a fee for the privilege.

Lump sums beat drips for interest savings: $1,200 once in month 1 saves more than $100/month for 12 months, because the full $1,200 skips interest immediately. Got a bonus or tax refund? Throw it at principal the day it arrives — timing matters as much as amount.

Where extra payments go matters: specify “apply to principal” — otherwise lenders may treat it as a prepaid future payment (no interest saved). And check for prepayment penalties (rare now, but some loans charge). Never stretch to make extra payments while carrying higher-rate debt: kill the 24% credit card before prepaying the 7% loan.

Term length: the monthly-vs-total trade-off

Longer terms cut the payment but explode total interest. $25,000 at 7%:

The 7-year term “saves” $118/month versus 5 years but costs $1,993 more in interest. Rule: take the shortest term whose payment fits comfortably (under ~20% of take-home for car loans, under 28% for housing). If the short term’s payment scares you, you’re borrowing too much — the term isn’t the problem.

Depreciation vs amortization race: on a 7-year car loan, the car depreciates faster than the balance falls for the first 3–4 years — you’re underwater (owe more than it’s worth). A $30,000 car at 7%/84mo: after 3 years you owe ~$18,900 on a car worth ~$16,000. Gap insurance covers the difference if it’s totaled. Shorter terms and bigger down payments keep you above water.

For mortgages, the 15-vs-30 decision is the same trade at scale: $300,000 at 6.5% costs $1,896/mo x 30yr ($382,000 interest) versus $2,613/mo x 15yr ($170,000 interest). The 15-year saves $212,000 — but only if the higher payment leaves an emergency fund intact.

APR vs interest rate: the true cost

The interest rate prices the borrowed money; the APR (annual percentage rate) prices the loan — rate plus fees spread over the term. A 6.5% rate with $5,000 in fees on a $300,000 30-year mortgage is roughly 6.68% APR. When comparing offers, compare APRs — the lowest rate with high fees often loses.

Watch points: paying 1 point (1% of the loan) to cut the rate 0.25% breaks even in about 5–7 years. Staying 10+ years? Buy the points. Moving in 3? Don’t. Compute: $300,000 x 1 point = $3,000 cost; 0.25% rate cut saves ~$49/mo → breakeven 61 months.

Teaser rates on ARMs and credit cards deserve suspicion: “3.99% for 12 months” becomes 9%+ after. Model the reset rate, not the teaser — if you can’t afford the reset, it’s not affordable.

Fees are negotiable; rates less so. Origination fees, application fees, “processing” charges — ask “which of these can you waive?” Lenders routinely drop $500–2,000 in junk fees to win business, especially when you show a competing offer. The Loan Estimate form (required within 3 days of application) standardizes comparison: check page 1’s APR and “Total of Payments,” page 2’s itemized fees.

Comparing two offers? Compare the APR and the total of payments. The Consumer Financial Protection Bureau (CFPB) advises borrowers to look beyond the monthly payment: for each offer, weigh the APR and the total amount you will have paid over the life of the loan — the two figures that capture rate, fees and term together. Used that way, this page works as a loan rate calculator: enter each lender’s rate and term for the same amount, and the offer with the lower total interest — not the lower advertised rate — is the cheaper loan. Get at least three offers in writing before you choose; a rate quote without its fees is only half a quote.

Borrowing smart: the checklist

Before signing: (1) Compare at least 3 lenders — rates vary 0.5%+ for identical borrowers, worth tens of thousands. (2) Check the APR, not just the rate. (3) Ask about prepayment penalties and extra-principal options. (4) Verify the payment against your budget at the fully indexed rate for ARMs.

Debt hierarchy: pay minimums on everything, then avalanche extra cash at the highest rate first (mathematically optimal) — or snowball the smallest balance first (psychologically easier; costs slightly more). Either beats spreading extra payments evenly.

The affordability test: total debt payments under 36% of gross income (28% for housing). Above 40%, you’re one emergency from distress. And never borrow for depreciating consumption at high rates — a 12% loan for a vacation that lasts a week but bills for years is the worst trade in personal finance.

Good debt vs bad debt in one test: does the loan buy something that appreciates or earns (education, business, reasonably-priced home)? Potentially good. Does it fund consumption that vanishes (vacations, gadgets, weddings)? Bad at any rate above ~5%. The gray zone — cars — is why the 20/4/10 rule exists: 20% down, 4-year max term, payments under 10% of income. Violate it and the car owns you.