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Loan Calculator: Monthly Payment and Total Interest
Work out the fixed monthly payment on a standard amortizing loan, how much interest you will pay over the whole term, and how the balance falls year by year.
How the monthly payment is calculated
Most personal, car and instalment loans are amortizing: every payment is the same size, and each one covers that month's interest first, with the rest reducing the balance. The level payment comes from the annuity formula:
Payment = P × r ÷ (1 − (1 + r)−n)
where P is the amount borrowed, r is the interest rate per month (annual rate ÷ 12 ÷ 100) and n is the number of monthly payments. If the rate is zero the payment is simply P ÷ n.
Because interest is charged on the outstanding balance, early payments are mostly interest and later payments are mostly principal. That is why paying extra in the first years saves much more than paying extra near the end.
Reading your result
- Monthly payment: what leaves your account each month if the rate stays fixed and you never miss a payment.
- Total interest: the cost of borrowing. Compare it between offers rather than comparing only the monthly figure.
- Yearly breakdown: shows how much of each year's payments reduced the loan and how much was interest.
A longer term lowers the monthly payment but raises total interest, sometimes dramatically. Try the same loan over three and five years to see the trade-off before choosing.
Common mistakes when comparing loans
- Comparing rates without fees. Processing fees, insurance and early-repayment charges are not in this calculator. Ask the lender for the annual percentage rate (APR) or the total cost of credit.
- Mixing flat and reducing-balance rates. Some lenders quote a flat rate on the original amount. A flat rate of 8% is much more expensive than 8% on the reducing balance. This calculator uses the reducing-balance method.
- Forgetting variable rates. If your rate can change, treat this result as a snapshot and test a higher rate too.
- Ignoring the budget. Make sure the payment fits your income after essential costs, not just on payday.
What this calculator does not include
It assumes monthly payments, a fixed rate, no fees, no payment holidays and no extra repayments. Real loans may round payments, use day-count conventions for interest, or charge different rates in different periods. Use the figures for planning and confirm exact numbers in your loan agreement.
Worked example
Suppose you borrow 20,000 at 7.5% a year and repay it over four years (48 monthly payments).
Inputs
| Loan amount | 20000 |
|---|---|
| Annual interest rate | 7.5 % |
| Loan term | 4 |
| Term is in | Years |
Result
Fixed payment for 48 months.
| Total of all payments | 23,211.75 |
|---|---|
| Total interest | 3,211.75 |
| Interest as a share of the amount borrowed | 16.1% |
Yearly breakdown
| Year | Principal paid | Interest paid | Balance at year end |
|---|---|---|---|
| Year 1 | 4,453.98 | 1,348.96 | 15,546.02 |
| Year 2 | 4,799.75 | 1,003.19 | 10,746.28 |
| Year 3 | 5,172.37 | 630.57 | 5,573.91 |
| Year 4 | 5,573.91 | 229.03 | 0.00 |
Financial disclaimer: Results are estimates for planning and education. They are not financial, tax or legal advice. Fees, taxes, rates and rules vary by lender, product and country, so confirm figures with your provider or a qualified adviser before making decisions.
Frequently asked questions
How do I calculate a monthly loan payment?
Use the annuity formula: payment equals the amount times the monthly rate divided by one minus the monthly growth factor raised to the negative number of payments. The calculator above does this for you and shows the total interest.
Is a shorter loan term always better?
A shorter term costs less interest overall but needs a higher monthly payment. Choose the shortest term whose payment you can keep up comfortably, and keep some savings for emergencies.
What is the difference between a flat rate and a reducing-balance rate?
A flat rate charges interest on the original amount for the whole term, while a reducing-balance rate charges interest only on what you still owe. For the same quoted percentage, flat is considerably more expensive.
Will extra payments shorten my loan?
Usually yes, if the lender applies the extra to principal and does not charge a penalty. Because interest falls as the balance falls, even small extra payments early in the term can save a noticeable amount.
Can I use this for EMI calculations?
Yes. An equated monthly instalment (EMI) is the same fixed payment calculated with the reducing-balance formula used here.
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References and sources
- Consumer Financial Protection Bureau: educational guides on loans, APR and repayment. Link