Loan Calculator
Calculate monthly payments, total interest, and amortization schedules instantly.
About Loan Payments & Amortization
Taking out a loan is one of the biggest financial commitments you will make. Whether it's a $300,000 mortgage or a $20,000 car loan, understanding how the bank calculates your payments is crucial. This calculator breaks down the math, showing you exactly how much money goes to the bank (Interest) and how much creates equity (Principal).
How to Use This Calculator
Step-by-Step
- 1Principal Amount: Enter the exact amount of money you are borrowing (Purchase Price minus Down Payment).
- 2Interest Rate: Enter the Annual Percentage Rate (APR) offered by your lender.
- 3Loan Term: Select how long you have to pay it back (e.g., 30 years for a house, 60 months for a car).
- 4Analyze: Look at the 'Total Interest' figure—this is the true cost of the loan.
Pro Tips
- ✓Shop around! A difference of just 0.5% in interest can save you tens of thousands of dollars on a mortgage.
- ✓Consider the total cost, not just the monthly payment. Car dealerships often pitch 'low monthly payments' by extending the term to 7 or 8 years, which costs you a fortune in interest.
- ✓Use the Amortization chart to see when you break even.
The Math Behind It
Banks use the Standard Amortization Formula to ensure your payments are equal every month, even though the interest portion changes.
The Monthly Payment Formula
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]- M = Total monthly payment
- P = Principal loan amount
- i = Monthly interest rate (Annual Rate / 12)
- n = Total number of months (Years × 12)
How it works: In the first month, your balance is high, so the interest charge is high. Your payment covers that interest, and a tiny bit of principal. As the principal drops, the interest charge drops, so more of your fixed payment starts going toward the principal. This acceleration is called "Amortization".
Real World Applications
The 30-Year Mortgage
On a $300,000 mortgage at 7% interest:
Monthly Payment: ~$1,996.
Total Interest Paid: ~$418,000.
Shocking Fact: You pay significantly more in interest than the house is actually worth! This is why a lower rate or shorter term is powerful.
Auto Loans
Cars depreciate (lose value), while loans cost interest. If you take a 72-month loan for a car, you might end up "Under water"—owing more than the car is worth—after 3 years. Financial experts recommend sticking to the 20/4/10 rule (20% down, 4 years max, <10% of income).
Principal Only Payments
If you add just $100 extra to your mortgage payment every month, you could knock 4-5 years off a 30-year term and save over $60,000 in interest.
Frequently Asked Questions
How is my monthly loan payment calculated?
Your monthly payment is calculated using the loan amount (principal), interest rate, and loan term. The formula accounts for both principal and interest, ensuring the loan is fully paid off by the end of the term using a standard Amortization calculation.
What's the difference between APR and interest rate?
The interest rate is the basic cost of borrowing. APR (Annual Percentage Rate) includes the interest rate PLUS other costs like origination fees, closing costs, and mortgage insurance. APR gives you a truer picture of the loan's total cost.
Does paying extra shorten the loan term?
Yes! Any payment made above the required monthly amount usually goes directly toward the Principal balance. This reduces the balance on which interest is calculated, saving you money and paying off the debt months or years early.
How does the loan term affect my payment?
A longer term (e.g., 60 months vs 36 months) lowers your monthly payment but increases the total interest you pay. A shorter term has higher monthly payments but saves you money in the long run. Always choose the shortest term you can comfortably afford.
What is an Amortization Schedule?
An Amortization Schedule is a table that shows exactly how each payment is split between Principal and Interest. At the beginning of a loan, most of your payment goes to Interest. By the end, most of it goes to Principal.