How the loan calculator works
Most personal, student and car loans are amortized: you pay the same amount every month, and each payment covers that month's interest first, with the rest reducing what you owe.
Monthly payment = P × r × (1 + r)n ÷ ((1 + r)n − 1)
- P is the amount you borrow.
- r is the monthly interest rate: the yearly rate ÷ 12 ÷ 100.
- n is the number of monthly payments.
The calculator then builds the full schedule month by month, rounding interest to the cent as lenders do, and adjusts the final payment so the balance lands on exactly $0.
Worked example
You borrow $25,000 at 7% for 5 years.
- Monthly rate: 7 ÷ 12 ÷ 100 = 0.005833.
- Number of payments: 5 × 12 = 60.
- Payment: 25,000 × 0.005833 × 1.00583360 ÷ (1.00583360 − 1) = $495.03.
- Total paid: about $29,702, so the loan costs about $4,702 in interest.
Ways to pay less interest
- Pay a little extra each month. Even $25 or $50 shortens the loan and cuts interest.
- Choose the shortest term you can afford. Interest has less time to build up.
- Compare APRs, not monthly payments. A low payment can hide a long, expensive term.
- Improve your credit before applying. A better score usually means a lower rate.
Frequently asked questions
How is a monthly loan payment calculated?
Lenders use the amortization formula: payment = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the amount borrowed, r is the yearly rate divided by 12, and n is the number of monthly payments. A $25,000 loan at 7% for 5 years works out to $495.03 a month.
How much do extra payments save?
Every extra dollar goes straight to the balance, so less interest builds up in every month after it. On a $25,000, 5-year loan at 7%, paying $100 extra a month saves about $940 in interest and clears the loan 11 months early. Check that your lender has no prepayment penalty first.
What is the difference between the interest rate and the APR?
The interest rate is the cost of borrowing the money. The APR (annual percentage rate) also includes most lender fees, spread over the loan, so it is usually a little higher. Use the APR here to compare offers on equal terms.
Why does most of my early payment go to interest?
Interest is charged on the balance you still owe. At the start the balance is highest, so the interest share is largest. As the balance falls, more of the same payment goes to principal each month.
Is a shorter loan term better?
A shorter term means a higher monthly payment but much less interest overall, and shorter loans often come with lower rates. A longer term lowers the payment but costs more in total. Pick the shortest term whose payment you can comfortably afford.
Calculations are exact for a fixed-rate loan with monthly payments, and do not include fees, insurance or late charges. Your lender's figures may differ by a few cents because of rounding. This is not financial advice. Read the full disclaimer and how we check our formulas.