Loan calculator

How do I calculate a loan payment?

Payment = P × r ÷ (1 − (1 + r)⁻ⁿ), with P the amount, r the monthly rate (annual rate ÷ 12) and n the number of months. $10,000 at 8% for 5 years is $202.76 a month.

How much interest will I pay?

Payments × months − the amount borrowed: 60 × $202.76 − $10,000 = $2,165.84 on the loan above.

Does a longer term save money?

It lowers the monthly payment but raises the total interest, because you owe the balance for longer. Compare terms in the table.

Is the interest rate the same as the APR?

Not always — the APR adds certain fees to the rate, so it shows the full yearly cost of borrowing. Enter the interest rate here to get the payment; compare offers by their APR.

What if the rate is 0%?

Then the payment is simply the amount divided by the months: $12,000 over 12 months is $1,000 a month.

Why is so much of my early payment interest?

Interest each month is the balance times the monthly rate, and the balance is highest at the start. The payment stays the same, so the interest share is largest in the first payments and shrinks as the balance falls. The CFPB describes the same pattern for an amortization schedule.

What happens if I pay extra each month?

The extra goes straight to principal, so every later month's interest is smaller and the loan ends sooner. Check with the lender that extra payments are applied to principal and that the loan has no prepayment charge.

How the monthly payment works

The loan is paid off with equal monthly payments. Each month the lender charges interest of balance × r, where r is the annual rate divided by 12; the rest of the payment reduces the balance. The payment formula is the one level amount that brings the balance to exactly zero after n months. It assumes a fixed rate, payments made on schedule and interest computed monthly. It does not include origination fees, insurance or taxes, and a rate that changes over time needs a different tool.

Worked example: $25,000 at 7.5%

Over 60 months the payment is $500.95. In the first month interest is $25,000 × 7.5% ÷ 12 = $156.25, so only $344.70 reduces the balance. Total interest is 60 × $500.95 − $25,000 = $5,056.92. Changing the term shows the trade-off: 36 months costs $777.66 a month and $2,995.60 in interest, while 72 months costs $432.25 a month and $6,122.20. Adding $100 a month to the 60-month loan finishes it in 49 months and cuts interest to $4,043.31.

Mistakes to avoid

Entering the APR as the rate can misstate the payment, since the payment is built from the note rate and the APR also folds in certain fees. Comparing only monthly payments across different terms hides the total cost; compare total interest too. Mixing years and months is common, so check which unit the term field uses: 5 years is 60 months. Finally, rounding: lenders round each payment to the cent, so the last payment can differ slightly from the others.

Sources: standard fixed-payment (annuity) amortization formula; CFPB, "What is an amortization schedule?" (interest share is highest early in the loan). Related tools: amortization calculator, loan payoff calculator, APR calculator, loan comparison calculator.

Estimates for planning only — not financial, tax or legal advice. Your lender's or employer's figures decide. How we check our calculators.