Enter down payment amount to reduce your loan principal
About Loan Calculator
This loan calculator helps you estimate your monthly loan payments, total interest, and overall cost of borrowing. It works for mortgages, auto loans, personal loans, student loans, and any other amortized loan.
Loan Payment Formula
The monthly payment is calculated using the standard amortization formula:
M = P × [r(1 + r)^n] / [(1 + r)^n - 1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (years × 12)
Example Calculation
Loan: $20,000 at 6% for 5 years
- Monthly interest rate: 6% ÷ 12 = 0.5% = 0.005
- Number of payments: 5 × 12 = 60
- Monthly payment: $386.66
- Total interest: $3,199.60
- Total payment: $23,199.60
Understanding Loan Components
Principal
The amount you borrow. If you buy a $250,000 home with a $50,000 down payment, your principal is $200,000.
Interest Rate
The cost of borrowing money, expressed as an annual percentage. The APR (Annual Percentage Rate) includes interest plus certain fees, giving you the true cost of borrowing.
Loan Term
How long you have to repay the loan. Shorter terms mean higher payments but less total interest. Longer terms mean lower payments but more total interest.
Frequently Asked Questions
How is monthly loan payment calculated?
Use the amortization formula: M = P × [r(1 + r)^n] / [(1 + r)^n - 1], where M is monthly payment, P is principal, r is monthly interest rate, and n is total number of payments.
What's the difference between interest rate and APR?
Interest rate is the cost of borrowing the money. APR includes the interest rate plus certain fees like origination fees, points, and closing costs. APR is the true cost of borrowing and allows comparison between lenders.
How can I lower my monthly payment?
You can lower your monthly payment by: 1) Choosing a longer loan term, 2) Refinancing at a lower rate, 3) Making a larger down payment to reduce the principal amount.
Should I pay off my loan early?
Consider paying early if you have a high interest rate (>7%), no better investment opportunities, and want to be debt-free. However, ensure you have an emergency fund first and aren't missing employer 401k matching.
About This Calculator
Frequently Asked Questions
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