How to Use Our Loan Calculator
To calculate your payment and total loan cost, you only need three key pieces of information.
Loan Amount ($): The total amount of money you are borrowing.
Loan Term: The length of time you have to repay the loan. You can enter this in years or months. A shorter term means higher payments but less interest paid overall.
Interest Rate (%): The loan’s Annual Percentage Rate (APR). The APR is the most accurate measure of cost as it includes interest and certain lender fees.
Understanding Your Results
This calculator provides a complete picture of your loan, breaking down where your money goes with each payment.
Key Loan Summary:
Monthly Payment: The fixed amount you will pay each month.
Total Interest Paid: The total cost of borrowing the money. This is the profit the lender makes and a key number to minimize.
Total Cost of Loan: The full amount you will have paid by the end of the term (Loan Amount + Total Interest Paid).
Loan Amortization Schedule
The most valuable part of the results is the amortization schedule. This table shows you, payment by payment, how your money is split between paying down your debt (principal) and paying the lender (interest).
You’ll notice that with early payments, a larger portion goes to interest. As you continue to make payments, more and more of your money goes toward paying down the principal until the balance reaches $0.
Example: Amortization for a $20,000 Loan over 5 Years at 8% APR
As shown, while the original loan was for $20,000, the total interest paid over the five years is $4,376.48.
Frequently Asked Questions About Loans
How can I get a lower interest rate?
Lenders determine your interest rate based on how risky they perceive you to be as a borrower. To get the best rates, you can:
Improve Your Credit Score: This is the single biggest factor. Pay your bills on time and keep your credit card balances low.
Choose a Shorter Loan Term: Lenders offer lower rates for shorter terms (e.g., a 3-year auto loan vs. a 6-year one) because their risk is lower.
Make a Larger Down Payment: For secured loans like auto loans, a larger down payment reduces the amount you need to borrow and can result in a better rate.
Shop Around: Get quotes from multiple lenders, including banks, credit unions, and online lenders. Rates for the exact same loan can vary significantly.
How does the loan term affect my payments and total cost?
Choosing a loan term involves a trade-off between your monthly budget and the total cost of the loan.
Shorter Term: The monthly payment is higher, but you pay off the loan faster and pay significantly less in total interest.
Longer Term: The monthly payment is lower and more manageable, but you will pay far more in total interest over the life of the loan.
What is the difference between a secured and an unsecured loan?
Secured Loan: This type of loan is backed by an asset you own, known as collateral. Examples include mortgages (backed by the house) and auto loans (backed by the car). If you fail to pay, the lender can seize the collateral. They are less risky for lenders and therefore have lower interest rates.
Unsecured Loan: This loan is not backed by any collateral. Most personal loans and all credit cards are unsecured. Because the lender has no asset to recover if you default, they are riskier and command higher interest rates.
Does making extra loan payments help?
Yes, absolutely. Any amount you pay above your required monthly payment is typically applied directly to the principal balance. This reduces the principal faster, which in turn reduces the amount of future interest you will pay, saving you money and shortening the life of your loan.
What is APR (Annual Percentage Rate)?
The Annual Percentage Rate (APR) is the total annual cost of borrowing money, expressed as a percentage. It includes not just the interest rate but also most lender fees and other charges associated with the loan. Always use the APR to compare loan offers, as it gives you a more complete cost picture than the interest rate alone.
What credit score do I need to get a loan?
While there’s no single minimum score, lenders generally use the following tiers (based on the FICO model):
800+: Exceptional
740-799: Very Good (Access to the best rates)
670-739: Good (Likely to be approved at competitive rates)
580-669: Fair (May qualify but at higher interest rates)
Below 580: Poor (Difficult to get approved by traditional lenders)
Take the Next Step in Your Financial Journey
