Loan Calculator: Monthly Payment and Amortization Calculator

Table of Contents - Loan

How to Use This Calculator
The Core Principle: Amortization
How to Calculate Loan Payments Manually
Real-World Applications
Scenarios People Actually Run Into
Trade-Offs and Decisions People Underestimate
Common Mistakes and How to Recover
Related Topics
How This Calculator Works
FAQs

How to Use This Calculator - Loan

Enter the Loan Amount—the principal you're borrowing.

Enter the Interest Rate as an annual percentage rate (APR).

Enter the Loan Term in months or years. Select the appropriate unit from the dropdown.

Select Payment Frequency: Monthly (most common), Bi-weekly (26 payments/year), Weekly, Quarterly, or Annual.

Click "Calculate" to see results. The output displays:

Payment amount per period
Total of all payments over the loan life
Total interest paid
Payment schedule showing principal/interest breakdown for each payment
Remaining balance after each payment

For extra payment analysis, enter an additional monthly payment amount to see time and interest savings.

The Core Principle: Amortization

Amortization is the process of paying off a loan through regular payments over time. Each payment covers two components: interest on the current balance and principal reduction.

The standard amortization formula: PMT = [P × r × (1 + r)^n] / [(1 + r)^n - 1]

Where P is principal, r is periodic rate (annual rate / payment periods per year), and n is total number of payments.

Early payments are mostly interest. At the start, your balance is high, so interest charges are high. Most of each payment covers interest, with little reducing principal.

Later payments are mostly principal. As the balance shrinks, interest charges decrease. More of each payment reduces principal, accelerating payoff.

This front-loaded interest structure means extra payments early in a loan save far more than extra payments later.

How to Calculate Loan Payments Manually

Monthly payment calculation: PMT = P × [r(1+r)^n] / [(1+r)^n - 1]

Example: $20,000 loan at 6% APR for 5 years P = $20,000 r = 0.06 / 12 = 0.005 n = 60 months

PMT = $20,000 × [0.005(1.005)^60] / [(1.005)^60 - 1] PMT = $20,000 × [0.005 × 1.349] / [1.349 - 1] PMT = $20,000 × 0.00675 / 0.349 PMT = $386.66

Total repayment: Total = PMT × n = $386.66 × 60 = $23,199.36

Total interest: Interest = Total - Principal = $23,199.36 - $20,000 = $3,199.36

First month breakdown: Interest = Balance × Monthly rate = $20,000 × 0.005 = $100 Principal = Payment - Interest = $386.66 - $100 = $286.66 New balance = $20,000 - $286.66 = $19,713.34

Second month: Interest = $19,713.34 × 0.005 = $98.57 Principal = $386.66 - $98.57 = $288.09 New balance = $19,713.34 - $288.09 = $19,425.25

Real-World Applications

Car loan comparison. Dealer offers 0% for 48 months or $2,000 cash back with 5% financing. Calculate total cost for each to determine which saves more.

Personal loan evaluation. Consolidating $15,000 credit card debt (22% APR) into a personal loan (10% APR) for 3 years. Calculate savings and new payment.

Debt payoff strategy. With multiple loans, calculate which to pay extra on—usually the highest rate (avalanche method) saves most interest.

Affordability assessment. Before shopping, calculate what monthly payment you can afford, then work backwards to determine loan amount.

Early payoff planning. Calculate how much extra payment needed to finish a 5-year loan in 4 years, and how much interest you'd save.

Scenarios People Actually Run Into

The long-term trap. Extending a car loan from 48 to 72 months lowers the payment from $450 to $320. But you pay $2,400 more in interest and owe more than the car's worth for years (underwater).

The extra payment power. A $20,000 car loan at 6% for 60 months costs $3,199 in interest. Adding $50/month extra reduces term to 51 months and saves $486 in interest—your $450 in extra payments saves $486.

The refinance calculation. Your auto loan is at 8% with 36 months remaining. Refinancing to 5% for 36 months lowers payment and total interest—but only if fees don't exceed savings.

The bi-weekly benefit. Switching from monthly to bi-weekly payments (half the monthly amount, every two weeks) adds one extra payment per year, shortening a 5-year loan by several months.

The prepayment penalty surprise. You plan to pay off your loan early but discover a prepayment penalty. Calculate whether the penalty exceeds the interest savings before deciding.

Trade-Offs and Decisions People Underestimate

Lower payment versus less interest. Shorter terms mean higher payments but less total interest. A 3-year versus 5-year loan on $15,000 at 6%: $456/month and $1,420 interest versus $290/month and $2,400 interest. The higher payment saves $980.

Interest rate versus term. A lower rate on a longer term might cost more total interest than a higher rate on a shorter term. Always compare total interest paid.

Fixed versus variable rates. Fixed rates provide payment certainty. Variable rates might start lower but can increase. Consider your risk tolerance and interest rate environment.

Loan versus opportunity cost. Paying cash avoids interest but ties up money that could earn returns elsewhere. If you can earn 8% investing but the loan costs 4%, borrowing might be smarter.

Accelerated payoff versus emergency fund. Extra payments reduce debt but also reduce liquidity. Ensure adequate emergency savings before aggressive debt payoff.

Common Mistakes and How to Recover

Ignoring total cost. A lower monthly payment isn't automatically better. Compare total interest paid across different terms and rates.

Not shopping for rates. Even a 0.5% rate difference on a car loan saves hundreds. Get quotes from multiple lenders, including credit unions.

Forgetting about GAP insurance. Long-term car loans can leave you owing more than the car's value. GAP insurance covers this difference if the car is totaled.

Assuming all interest is equal. Simple interest loans (common for autos) and compound interest behave differently. Early extra payments save more on compound interest.

Missing autopay discounts. Many lenders offer 0.25-0.50% rate reduction for autopay enrollment. Small but adds up.

How This Calculator Works

Payment calculation:

paymentsPerYear = {weekly: 52, bi-weekly: 26, monthly: 12, quarterly: 4, annually: 1}
totalPayments = (termMonths / 12) × paymentsPerYear
periodRate = annualRate / paymentsPerYear

payment = principal × [periodRate × (1 + periodRate)^totalPayments] / [(1 + periodRate)^totalPayments - 1]

Total interest:

totalPayment = payment × totalPayments
totalInterest = totalPayment - principal

Amortization schedule (for each payment):

interestPayment = remainingBalance × periodRate
principalPayment = payment - interestPayment
remainingBalance = remainingBalance - principalPayment

Extra payment analysis: Same calculation with payment + extraPayment as the payment amount. Compare total payments and payoff time to standard schedule.

All calculations happen locally in your browser.

FAQs

How accurate is this calculator?

It uses the exact amortization formula used by lenders. Actual payments may vary slightly due to rounding conventions or lender-specific calculations.

Can I model extra payments?

Yes—enter extra payment amount to see how additional monthly payments reduce total interest and shorten the loan term.

What's the difference between principal and interest?

Principal is the amount borrowed. Interest is the cost of borrowing. Each payment covers both, with the split changing over time.

Why do I pay more interest early in the loan?

Interest is calculated on the remaining balance. Early in the loan, the balance is high, so interest charges are high. As you pay down principal, interest charges decrease.

How does payment frequency affect total cost?

Bi-weekly payments (26 per year) result in one extra payment annually compared to monthly (12 per year). This accelerates payoff and reduces total interest.

Should I make extra payments?

If your loan has no prepayment penalty and you have adequate emergency savings, extra payments save interest—especially early in the loan.

How do I compare loan offers?

Compare APR (includes fees), monthly payment, total interest, and loan term. The lowest APR isn't always the best if terms differ significantly.

What if I miss a payment?

Late fees apply, and the interest portion of your next payment increases because the balance didn't decrease. Contact your lender immediately if you anticipate payment difficulties.

How do secured versus unsecured loans differ?

Secured loans (auto, mortgage) use collateral, enabling lower rates. Unsecured loans (personal, credit card) have no collateral, commanding higher rates. Default consequences also differ—secured loans risk losing the collateral.

What is the debt avalanche method?

Pay minimums on all debts, then put extra money toward the highest-rate debt. Once paid, roll that payment to the next highest rate. Mathematically optimal for minimizing total interest paid.

What is the debt snowball method?

Pay minimums on all debts, then put extra money toward the smallest balance. Once paid, roll that payment to the next smallest. Not mathematically optimal but provides psychological wins that help some people stay motivated.

How do I calculate the true cost of a loan offer?

Add total interest to any fees (origination, closing). Divide by loan amount to get true cost percentage. Compare this across offers with different rates, fees, and terms for accurate evaluation.

When should I consider refinancing?

When you can get a significantly lower rate (typically 0.5-1% or more), plan to keep the loan long enough to recoup closing costs, and your credit situation has improved since the original loan.

What's the impact of loan origination fees?

Origination fees (typically 0.5-1% of loan amount) add to your total cost. A $15,000 loan with 1% origination fee means you receive $15,000 but effectively pay interest on $15,150. Factor fees into APR comparisons.

How do I handle multiple loans strategically?

List all loans with balances, rates, and minimum payments. Use either avalanche (highest rate first) or snowball (smallest balance first) method. Calculate total interest paid under each strategy to make an informed choice.

What is negative amortization?

When minimum payments don't cover interest due, the unpaid interest adds to principal. Your balance grows instead of shrinking. Avoid loans with potential negative amortization—they're typically predatory products.

Additional Notes and Tips

This calculator processes all inputs locally in your browser, ensuring both privacy and instant results without data transmission. For specialized applications or complex planning scenarios, consider consulting professionals who can account for your specific circumstances and goals.

Loan Calculator — Loan Payment & Amortization Calculator