How a loan payment is calculated
A fixed-rate installment loan uses a standard amortization formula: every month you pay the same amount, but the split between principal and interest changes. Interest is charged on the remaining balance, so the very first payment is mostly interest, and each following payment nudges a little more toward principal.
The monthly payment M for a loan of principal P, monthly interest rate r, and number of months n is: M = P · r(1 + r)^n / ((1 + r)^n − 1). Divide the annual percentage rate (APR) by 12 to get the monthly rate r. The Consumer Financial Protection Bureau requires U.S. lenders to disclose the APR under Regulation Z of the Truth in Lending Act, which makes it the fairest number to compare offers with.
Worked example
Suppose you borrow $20,000 for a used car at a 7.5% APR for 60 months. The monthly interest rate is 7.5 / 12 = 0.625%. Plugging into the formula: M = 20000 · 0.00625 · (1.00625)^60 / ((1.00625)^60 − 1) ≈ $400.76. Over five years you'll pay about $4,046 in interest — roughly 20% on top of the sticker price. Extending the term to 72 months drops the monthly payment to about $345 but pushes total interest above $4,900.
| Term | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 36 months | $622.14 | $2,397 | $22,397 |
| 48 months | $483.58 | $3,212 | $23,212 |
| 60 months | $400.76 | $4,046 | $24,046 |
| 72 months | $345.65 | $4,887 | $24,887 |
APR vs. interest rate — the number that matters
The interest rate is what the lender charges on the outstanding balance. The APR is that rate plus most fees, expressed on an annualized basis. Two offers can share a 7% headline rate but have wildly different APRs once origination fees, servicing costs, or mandatory insurance are included. When comparing loans, always compare APR to APR — that's the number this calculator uses and the number regulators require lenders to publish.
Shorter terms, prepayment, and extra principal
Two levers cut total interest dramatically: a shorter term and extra principal payments. Cutting a $20,000 loan from 72 months to 48 months at 7.5% APR saves you roughly $1,700 in interest at the cost of about $138 more per month. Making one extra payment a year on a five-year loan typically shaves several months off the schedule and hundreds of dollars off the interest bill.
- Confirm the loan has no prepayment penalty before making extra payments.
- Tell the lender explicitly to apply extras to principal — otherwise they may be treated as advance regular payments.
- Refinance only if the new APR after fees beats the remaining effective rate on your current loan.
Types of loans this calculator fits
Any fixed-rate, fully amortizing installment loan uses the same formula: personal loans, used-car and new-car loans, student loans in repayment, home equity loans, and small-business term loans. Credit cards, HELOCs, and adjustable-rate mortgages behave differently — the balance and rate move month to month — so a general loan calculator is only an approximation for those products. For a home mortgage, use the dedicated mortgage calculator so taxes, insurance, and PMI are handled explicitly.
Costs the payment doesn't show
- Origination fees, usually 1%–8% of the loan, deducted upfront but reflected in APR.
- Late-payment fees and returned-payment fees written into the promissory note.
- Insurance products (credit life, GAP) some lenders bundle by default — decline if not required.
- Interest accruing during any deferment or forbearance period on student loans.
How to use this loan calculator
- Enter the amount you plan to borrow after any down payment or trade-in.
- Enter the APR from the lender's disclosure — not the introductory rate.
- Enter the term in months (60 months = 5 years; 84 months = 7 years).
- Read the monthly payment, total interest, and total paid on the right.
- Adjust any input to compare offers and terms side by side.
When this calculator won't be accurate
Variable-rate loans re-price on a schedule and can't be modeled with a single APR. Interest-only loans defer principal repayment, so the amortization formula doesn't apply. Loans with balloon payments end with one large final payment that this tool doesn't account for. For those products, ask the lender for the full payment schedule and read the promissory note carefully.