Payment Calculator — Loan & Mortgage
Calculate monthly loan payments for any loan amount, interest rate, and term. See amortization schedules, compare loan terms, and understand how extra.
Formula
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Monthly payment (M) equals principal (P) times the monthly rate factor. This formula ensures equal payments that fully amortize the loan over the term.
Worked Examples
Example 1: Auto Loan Payment Calculation
Problem:Calculate the monthly payment for a $28,000 car loan at 5.9% APR for 60 months.
Solution:Using the payment formula: P = $28,000 r = 5.9% / 12 = 0.4917% n = 60 months M = $28,000 × [0.004917(1.004917)^60] / [(1.004917)^60 - 1] M = $28,000 × [0.004917 × 1.3426] / [1.3426 - 1] M = $28,000 × 0.006601 / 0.3426 M = $540.12/month Total: $540.12 × 60 = $32,407.20 Interest: $32,407.20 - $28,000 = $4,407.20
Result:Monthly payment: $540.02 | Total interest: $4,401.05
Example 2: Impact of Extra Payments
Problem:How much can you save by paying $100 extra monthly on a $20,000 loan at 7% for 48 months?
Solution:Standard payment: $478.92/month With $100 extra: $578.92/month Without extra payments: - 48 months to pay off - Total interest: $2,988.12 With $100 extra: - Paid off in 39 months - Total interest: $2,386.25 Savings: - 9 months earlier payoff - $601.87 interest saved
Result:Save $588.12 in interest and pay off 9 months early
Example 3: Comparing Loan Terms
Problem:Compare 36-month vs 60-month terms for a $15,000 loan at 6.5% APR.
Solution:36-month term: Payment = $459.74 Total = $16,550.64 Interest = $1,550.64 60-month term: Payment = $293.49 Total = $17,609.40 Interest = $2,609.40 Difference: Monthly savings: $166.25 lower payment Extra cost: $1,058.76 more interest
Result:60-month saves $166/mo but costs $1,059 more total
Frequently Asked Questions
How is a loan payment calculated?
Monthly loan payments are calculated using the formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where P is the principal, r is the monthly interest rate, and n is the number of payments. This ensures each payment covers interest charges while gradually reducing the principal balance over the loan term.
What factors affect my monthly payment amount?
Three main factors determine your payment: 1) Loan amount (higher principal = higher payment), 2) Interest rate (higher rate = higher payment), 3) Loan term (longer term = lower monthly payment but more total interest). Other factors include fees, insurance requirements, and whether the rate is fixed or variable.
Should I choose a shorter or longer loan term?
Shorter terms mean higher monthly payments but less total interest. Longer terms reduce monthly payments but cost more overall. Example: $25,000 at 6%: 36 months = $760/month, $2,360 interest; 60 months = $483/month, $3,999 interest. Choose based on your budget and total cost tolerance.
How do extra payments reduce my loan cost?
Extra payments go directly toward principal, reducing the balance faster. This means less interest accrues on future payments, shortening your loan term. Even small extra payments make a difference. $50 extra monthly on a $25,000 loan at 6% for 60 months saves about $400 in interest and pays off 5 months early.
What's the difference between APR and interest rate?
Interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus fees, points, and other charges, expressed as a yearly rate. APR gives a more complete cost picture. A loan might have 5% interest but 5.5% APR after fees. Always compare APRs between lenders.
How does amortization work?
Amortization spreads loan repayment over time through equal payments. Early payments are mostly interest; later payments are mostly principal. This is because interest is calculated on the remaining balance - as balance decreases, so does the interest portion. An amortization schedule shows this breakdown for each payment.
Can I negotiate my interest rate?
Yes! Lenders have flexibility, especially if you have good credit, stable income, or existing relationship. Get quotes from multiple lenders and use them as leverage. Consider: credit unions often have lower rates, 0% dealer financing (but check for hidden costs), and whether points (prepaid interest) make sense for your situation.
What happens if I miss a payment?
Missing payments has serious consequences: late fees (typically $25-50), interest continues accruing, negative credit report impact after 30 days late, potential default after 90+ days. If you anticipate trouble, contact your lender immediately - many offer hardship programs, deferment, or modified payment plans.
Should I pay off my loan early?
Usually yes, but check for prepayment penalties first. Benefits of early payoff: interest savings, improved debt-to-income ratio, peace of mind. However, if your loan has a low rate and you could earn more investing the money, it might make sense to keep the loan. Also consider: are there higher-interest debts to pay first?
How do I choose between different loan offers?
Compare: 1) APR (total cost including fees), 2) Monthly payment (fits your budget?), 3) Total interest over the loan, 4) Prepayment penalties, 5) Flexibility (payment dates, hardship options). Don't just look at monthly payment - a lower payment with longer term costs more overall. Calculate total repayment for true comparison.
Background & Theory
Understanding loan payments is essential for making informed borrowing decisions. Whether financing a car, consolidating debt, or funding a major purchase, knowing how payments are calculated helps you compare options and minimize costs.
The Loan Payment Formula:
M = P × [r(1+r)^n] / [(1+r)^n - 1]
Where:
- M = Monthly payment
- P = Principal (loan amount)
- r = Monthly interest rate (annual rate / 12)
- n = Number of payments (months)
Breaking Down a Payment:
Each payment consists of:
- Interest portion: Calculated on current balance
- Principal portion: Remainder after interest
Early in the loan, most of your payment goes to interest. Over time, more goes to principal as the balance decreases.
Key Loan Concepts:
Principal: The amount borrowed, excluding interest and fees.
Interest Rate: The cost of borrowing, expressed as annual percentage.
APR (Annual Percentage Rate): Total cost including fees, expressed as annual rate. Required by Truth in Lending Act for comparison.
Term: Length of the loan in months or years.
Amortization: Process of paying off debt through regular payments over time.
Factors Affecting Your Rate:
- Credit score (higher score = lower rate)
- Loan-to-value ratio
- Debt-to-income ratio
- Loan term
- Collateral (secured vs. unsecured)
- Economic conditions
- Lender policies
Types of Loans:
Fixed Rate: Payment stays the same throughout the term. Predictable, good for budgeting.
Variable Rate: Rate adjusts with market conditions. May start lower but can increase.
Simple Interest: Interest calculated only on principal. Standard for most consumer loans.
Compound Interest: Interest calculated on principal plus accumulated interest. More common in credit cards.
Strategies to Reduce Loan Costs:
- Improve credit score before applying
- Shop multiple lenders - rates vary significantly
- Choose shorter terms when affordable
- Make extra payments toward principal
- Refinance if rates drop significantly
- Avoid add-ons like credit insurance
- Time your application when rates are favorable
Extra Payment Impact:
Extra payments go directly to principal, reducing:
- Total interest paid
- Time to payoff
- Total cost of the loan
Even small extra payments compound over time. $25 extra monthly can save hundreds in interest.
Warning Signs to Avoid:
- Prepayment penalties
- Balloon payments
- Variable rates with no caps
- Excessive fees
- Pressure tactics
- "No credit check" offers (usually very high rates)