Loan Calculator
Loan Tips
- •Shop around for the best interest rates
- •Shorter terms mean higher payments but less total interest
- •Making extra payments can save thousands in interest
- •Check for prepayment penalties before paying off early
Related Calculators
Understanding Loans
How Loan Payments Work
Most loans use amortization, where each payment is split between principal and interest. Early in the loan, most of your payment goes toward interest. Over time, more goes toward principal.
M = P × [r(1+r)n] / [(1+r)n - 1]
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments
Types of Loans
Secured Loans
Backed by collateral (auto loans, mortgages). Lower rates because the lender can seize the asset if you default.
Unsecured Loans
No collateral required (personal loans, credit cards). Higher rates because the lender takes more risk.
Fixed-Rate Loans
Interest rate stays the same for the entire loan term. Predictable payments, good when rates are low.
Variable-Rate Loans
Interest rate can change based on market conditions. May start lower but payments can increase over time.
Loan Term Comparison
Here's how loan term affects a $20,000 loan at 7% interest:
| Loan Term | Monthly Payment | Total Interest | Total Paid |
|---|---|---|---|
| 36 months | $617.57 | $2,233 | $22,233 |
| 48 months | $478.92 | $2,988 | $22,988 |
| 60 months | $396.02 | $3,761 | $23,761 |
| 72 months | $341.49 | $4,587 | $24,587 |
The Trade-off
Longer terms mean lower monthly payments but significantly more total interest. In the example above, extending from 36 to 72 months saves $276/month but costs an extra $2,354 in interest.
APR vs Interest Rate
Interest Rate
The cost of borrowing the principal. This is what's used to calculate your actual monthly payment.
APR (Annual Percentage Rate)
Includes interest rate plus fees and other costs. Better for comparing loans from different lenders.
Strategies to Pay Off Loans Faster
- Bi-weekly payments: Make half your payment every two weeks instead of monthly. This equals one extra payment per year.
- Round up payments: If your payment is $287, pay $300. Small amounts add up.
- Extra principal payments: Apply bonuses or tax refunds directly to principal.
- Refinance: If rates drop, refinancing to a lower rate can save money.
Watch Out For
- • Prepayment penalties: Some loans charge fees for paying off early
- • Origination fees: Upfront costs that increase your effective rate
- • Variable rates: Can increase substantially over the loan term
- • Balloon payments: Large final payment that may be hard to afford
Frequently Asked Questions
How is my loan payment calculated?
Loan payments are calculated using the amortization formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the principal, r is the monthly interest rate, and n is the number of payments. This formula ensures equal payments throughout the loan term while gradually shifting from interest-heavy to principal-heavy payments.
What's the difference between APR and interest rate?
The interest rate is the cost of borrowing the principal amount, while APR (Annual Percentage Rate) includes the interest rate plus other fees like origination fees, closing costs, and points. APR gives you a more complete picture of the true cost of borrowing and is better for comparing loan offers from different lenders.
How can I pay off my loan faster?
You can pay off your loan faster by making bi-weekly payments instead of monthly (results in one extra payment per year), rounding up payments, applying bonuses or tax refunds to principal, or refinancing to a shorter term. Always check for prepayment penalties before paying extra.
What is loan amortization?
Amortization is the process of spreading loan payments over time. In an amortized loan, each payment is split between principal and interest. Early payments are mostly interest, but over time, more of each payment goes toward reducing the principal balance until the loan is fully paid off.