How to use
- 1Enter the loan amount and the interest rate (annual or monthly).
- 2Set the term in months and add any upfront fees.
- 3Read the monthly payment, total repayment and total interest.
- 4Open the amortization schedule or try an extra payment to see how early payoff changes the cost.
How the monthly payment is calculated
Most personal loans, car loans and fixed-rate mortgages are annuity loans: you pay the same amount every month. The payment is M = P × i ÷ (1 − (1 + i)^−n), where P is the loan amount, i the monthly interest rate and n the number of months. Borrowing $20,000 at 7% a year over 60 months gives a payment of about $396 and around $3,760 in total interest.
Reading the amortization schedule
Each payment covers that month’s interest first; the rest reduces the balance. Early on, a large share goes to interest; towards the end, almost all of it repays principal. The schedule lists the interest, principal and remaining balance for every month, which shows how much you still owe at any point.
APR, fees and early payoff
The interest rate alone does not show the full cost. Fees such as origination or arrangement fees raise the real cost, which is why lenders must quote an APR (annual percentage rate) that includes them — compare loans by APR, not by the nominal rate. The calculator works out the APR as the internal rate of return of the amount you actually receive (loan minus fees) against your payments. Paying extra or paying the loan off early cuts the remaining interest; check your agreement for any early repayment charge before you do.
Frequently asked questions
How is a monthly loan payment calculated?
With the annuity formula M = P × i ÷ (1 − (1 + i)^−n), using the monthly rate i and the number of months n. The calculator does this for you.
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal; the APR also includes required fees, so it is the better figure for comparing offers.
Does paying extra reduce total interest?
Yes. Extra payments reduce the balance on which future interest is charged, so you pay less interest and finish sooner.
Does this work for mortgages?
Yes, for fixed-rate repayment mortgages. It does not include property taxes, insurance or rate changes on variable loans.
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