Loan Calculator
Calculate monthly loan payments, total interest, and view a full amortization schedule. Works for personal loans, auto loans, and more. See also Mortgage Calculator and Compound Interest Calculator.
How to Calculate Loan Payments
Loan payments are calculated using the standard amortization formula. You need three inputs: the loan amount (principal), the annual interest rate, and the loan term in years. The calculator converts the annual rate to a monthly rate, then applies the formula to determine a fixed monthly payment that covers both principal and interest over the loan term. Each payment reduces the outstanding balance, with early payments going mostly toward interest and later payments going mostly toward principal.
Loan Payment Formula (EMI)
EMI = P × r × (1 + r)^n / ((1 + r)^n − 1)
Where:
P = Principal (loan amount)
r = Monthly interest rate (annual rate / 12 / 100)
n = Total number of payments (years × 12)
Example
Loan: $10,000 at 5% for 5 years
r = 5 / 12 / 100 = 0.004167
n = 5 × 12 = 60 months
EMI = 10000 × 0.004167 × (1.004167)^60 / ((1.004167)^60 − 1)
EMI = $188.71 per month
Total Payment = $188.71 × 60 = $11,322.74
Total Interest = $11,322.74 − $10,000 = $1,322.74
What is Amortization?
Amortization is the process of spreading a loan into a series of fixed payments over time. Each payment consists of two parts: interest on the remaining balance and principal repayment. In the early months, a larger portion of each payment goes toward interest because the outstanding balance is high. As the balance decreases, more of each payment goes toward reducing the principal. The amortization schedule shows this breakdown for every payment throughout the loan term, helping borrowers understand exactly how their money is allocated.
Loan Comparison Table
| Loan Amount | Rate | Term | Monthly Payment | Total Interest |
|---|---|---|---|---|
| $5,000 | 4% | 3 yrs | $147.62 | $314.32 |
| $10,000 | 5% | 5 yrs | $188.71 | $1,322.74 |
| $20,000 | 6% | 5 yrs | $386.66 | $3,199.36 |
| $25,000 | 7% | 7 yrs | $376.59 | $6,633.72 |
| $50,000 | 5% | 10 yrs | $530.33 | $13,639.46 |
| $100,000 | 6% | 15 yrs | $843.86 | $51,894.23 |
Technical Details
This calculator uses the standard fixed-rate amortization formula used by banks and financial institutions worldwide. The formula assumes equal monthly payments (EMI) with interest compounded monthly. The calculation is precise to the cent and matches results from major financial calculators. For variable-rate loans, the payment would need to be recalculated each time the rate changes. This calculator also generates a complete month-by-month amortization schedule showing the exact split between principal and interest for every payment.
Frequently Asked Questions
How is a loan payment calculated?
The monthly payment is calculated using the amortization formula: EMI = P × r × (1+r)^n / ((1+r)^n − 1), where P is the principal, r is the monthly interest rate, and n is the total number of payments.
What is the difference between principal and interest?
Principal is the original amount borrowed. Interest is the cost of borrowing — the fee the lender charges for lending you money. Your monthly payment covers both: part goes to reduce the principal, and part pays the interest.
Should I choose a shorter or longer loan term?
A shorter term means higher monthly payments but significantly less total interest. A longer term means lower monthly payments but more total interest paid. For example, a $10,000 loan at 5% costs $1,322 in interest over 5 years but $2,728 over 10 years.
Can I pay off my loan early?
Most loans allow early payoff, but some charge a prepayment penalty. Making extra payments toward principal reduces total interest and shortens the loan term. Even small additional payments can save significant money over the life of the loan.
What is APR vs interest rate?
The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus other fees and costs, giving a more complete picture of the total borrowing cost. APR is always equal to or higher than the interest rate.
Solved Examples
Example 1: Monthly payment on a $25,000 personal loan
Solution:
Loan amount = $25,000, Interest rate = 7.5%, Term = 5 years (60 months)
Monthly rate = 7.5% / 12 = 0.625% = 0.00625
EMI = P × r × (1+r)^n / [(1+r)^n - 1]
EMI = 25,000 × 0.00625 × (1.00625)^60 / [(1.00625)^60 - 1]
EMI = 25,000 × 0.00625 × 1.4530 / [1.4530 - 1]
EMI = $501.38
Total payment = $501.38 × 60 = $30,083
Total interest = $30,083 - $25,000 = $5,083
Answer: Monthly payment = $501.38, total interest paid = $5,083 over 5 years.
Example 2: How much can you borrow at $800/month?
Solution:
Budget = $800/month, Rate = 6%, Term = 4 years (48 months)
Monthly rate = 0.5% = 0.005
Loan = EMI × [(1+r)^n - 1] / [r × (1+r)^n]
Loan = $800 × [(1.005)^48 - 1] / [0.005 × (1.005)^48]
Loan = $800 × [1.2705 - 1] / [0.005 × 1.2705]
Loan = $800 × 0.2705 / 0.006353 = $34,064
Answer: You can borrow approximately $34,064 with an $800/month payment at 6% for 4 years.
Example 3: Impact of extra payments on a $40,000 loan
Solution:
Loan = $40,000, Rate = 8%, Term = 5 years, Normal EMI = $811.06
Total interest with normal payments = $8,664
Adding $100 extra per month ($911.06 total):
Loan paid off in ~53 months (7 months early)
Total interest saved ≈ $1,275
Answer: An extra $100/month saves $1,275 in interest and pays off the loan 7 months early.
Practice Questions
Try these on your own:
- $15,000 loan at 9% for 3 years. What is the monthly payment? (Answer: $477.00)
- $50,000 loan at 5% for 7 years. What is the total interest paid? (Answer: $9,506)
- You can afford $600/month at 6.5% for 5 years. Maximum loan amount? (Answer: ≈$30,453)
- Loan A: $20,000 at 4% for 5 years. Loan B: $20,000 at 7% for 3 years. Which has less total interest? (Answer: Loan B = $2,199 vs Loan A = $2,100 — Loan A saves slightly more despite longer term due to lower rate)
- $100,000 loan at 6% for 30 years vs 15 years. What's the interest difference? (Answer: 30-yr total interest = $115,838; 15-yr = $51,894; Savings = $63,944)
Common Mistakes to Avoid
The most costly mistake is focusing only on the monthly payment without considering total interest paid. A longer term reduces monthly payments but dramatically increases total cost — a $30,000 loan at 6% costs $3,960 in interest over 3 years, but $7,200 over 7 years. Another error is not distinguishing between APR and the actual interest rate; APR includes fees and gives the true annual cost. Many borrowers forget to account for origination fees (1-5% of loan amount) which are deducted from proceeds but you still owe the full amount. Choosing a variable rate loan without understanding rate caps and worst-case scenarios can lead to payment shock. Finally, not checking your credit score before applying results in higher rates — even a 1% difference on a $30,000 loan costs over $900 in extra interest over 5 years.
Key Takeaways
- EMI = P × r × (1+r)^n / [(1+r)^n - 1], where P = principal, r = monthly rate, n = total months.
- Shorter loan terms mean higher monthly payments but significantly less total interest paid.
- Even small extra payments toward principal can save thousands and shorten the loan term.
- APR includes fees and is a better comparison tool than the nominal interest rate alone.
- Your credit score directly impacts the interest rate offered — improve it before borrowing for better terms.
- Total cost of a loan = (Monthly Payment × Number of Months) - Principal = Total Interest Paid.