Loan & Mortgage Calculator

How to Use the Loan Calculator

1. Enter the loan amount. This is the total principal you are borrowing — for a mortgage, that is the purchase price minus your down payment. For a car loan it is the vehicle price minus any trade-in or deposit. Do not include taxes, insurance, or other fees in this field.
2. Enter the annual interest rate. Type the rate as a percentage (e.g., 6.5 for 6.5%). Use the base interest rate from your lender quote, not the APR. The difference between those two figures is explained in the FAQ below.
3. Enter the loan term in months. Common terms are 360 months (30 years) or 180 months (15 years) for mortgages, 48–72 months for auto loans, and 12–84 months for personal loans. The longer the term, the lower your monthly payment — but the more total interest you pay over the life of the loan.
4. Read your results instantly. The calculator shows your fixed monthly payment, the total amount you will repay across all payments, and the total interest charged. A breakdown chart lets you see at a glance how much of every dollar you send in goes toward the principal versus the lender's interest.
5. Try different scenarios. Adjusting the loan amount, rate, or term updates the numbers immediately. Use this to compare a 15-year versus 30-year mortgage, or to see how much you save by putting a larger down payment down and borrowing less.

How Monthly Payments Are Calculated

Every fixed-rate loan uses the standard amortization formula to compute your monthly payment. The formula ensures that each payment is exactly the same dollar amount, yet the split between interest and principal shifts with every payment made. Here is the formula:

M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

Each variable has a specific meaning:

• M — the fixed monthly payment you will make every month for the life of the loan.
• P — the principal, meaning the original amount borrowed before any payments are made.
• r — the monthly interest rate, calculated as the annual rate divided by 12. For a 6% annual rate, r = 0.06 ÷ 12 = 0.005 (or one-half of one percent per month).
• n — the total number of monthly payments. A 5-year loan has n = 60; a 30-year mortgage has n = 360.

The numerator, P × r × (1 + r)ⁿ, scales the principal by the compounded growth of interest over all n periods. The denominator, (1 + r)ⁿ − 1, converts that figure into a level annuity — a stream of equal payments that exactly retires the debt.

Each month, the lender first charges interest on the remaining balance: interest due = balance × r. The rest of your payment (M − interest due) reduces the principal. Because the balance falls a little each month, the interest portion shrinks and the principal portion grows — even though the payment stays the same. This gradual shift is the essence of amortization.

A Worked Example

Suppose you borrow $25,000 at 6% APR for 60 months (5 years). Plugging into the formula:

• r = 6% ÷ 12 = 0.5% per month (0.005)
• n = 60 payments
• (1.005) raised to the 60th power ≈ 1.34885
• M = 25,000 × (0.005 × 1.34885) ÷ (1.34885 − 1) ≈ $483.32

Over 60 payments you send in 60 × $483.32 = $28,999. The original loan was $25,000, so your total interest cost is roughly $3,999 — about 16% of what you borrowed.

Now look at the very first payment. At that point your balance is still the full $25,000, so the interest charge is $25,000 × 0.005 = $125.00. That means only $483.32 − $125.00 = $358.32 goes toward paying down the loan itself. More than a quarter of your first payment is pure interest.

By payment 30 (the midpoint), the remaining balance has fallen to about $13,200. Interest that month is $13,200 × 0.005 = $66 — so about $417 of the $483.32 payment now reduces principal. By the final payment, virtually the entire payment is principal and the interest charge is just a few cents.

This shift is why paying off a loan early — even by a small amount — saves disproportionately more interest than the math of a single extra payment would suggest. Every dollar of extra principal paid today eliminates the interest that dollar would have generated across all remaining months.

Total Interest and Extra Payments

The loan term and interest rate are the two biggest levers on total interest paid. The table below uses the same $25,000 principal to illustrate the impact of changing each variable:

Notice that stretching the 6% loan from 36 to 84 months more than doubles the total interest ($2,380 vs $5,926) while only saving $392 per month. Meanwhile, a 2-point drop in rate (from 8% to 6% over 60 months) saves roughly $1,416 in interest — often worth the effort of shopping lenders or improving your credit score first.

Extra payments are powerful. Making one additional full payment per year on a 60-month loan effectively turns it into a roughly 51-month loan, saving you about 9 months of payments and a meaningful slice of interest. On a 30-year mortgage at 6%, one extra payment per year can shorten the loan by 4–5 years and cut tens of thousands in interest.

APR vs. interest rate: lenders are required to disclose both figures. The stated interest rate drives the monthly payment formula above. The APR (Annual Percentage Rate) adds origination fees, points, and certain closing costs to that rate, spreading them across the loan term. Always compare APRs — not just interest rates — when choosing between loan offers, because a low rate with high fees can cost more than a slightly higher rate with no fees.

Frequently Asked Questions