How to Use Our Loan Payment Calculator
To find your estimated monthly payment, you only need three key pieces of information about your potential loan.
Loan Amount: Enter the total amount of money you plan to borrow. If you are making a down payment on a purchase (like a car), do not include the down payment in this amount.
Loan Term: This is the length of time you have to pay back the loan. You can enter the term in either years or months.
Interest Rate (APR): Enter the annual cost of your loan as a percentage. For the most accurate result, use the Annual Percentage Rate (APR), as it includes not just the interest but also most lender fees.
Understanding Your Results
Your result shows more than just a monthly payment; it reveals the true cost of borrowing money. Here’s a breakdown of what the numbers mean.
Monthly Payment: This is the fixed amount you will be required to pay each month until the loan is paid off.
Total Principal Paid: This is the original amount of money you borrowed.
Total Interest Paid: This is the total cost of borrowing the money. This is the profit the lender makes from your loan. Minimizing this number is a key goal for any savvy borrower.
The Power of Amortization: Where Your Money Goes
Each monthly payment you make is split into two parts: principal and interest. This split changes over the life of the loan in a process called amortization.
At the beginning of your loan, a larger portion of your payment goes toward interest. As you continue to make payments and your balance shrinks, more and more of each payment goes toward paying down your principal.
Amortization Example: $25,000 Loan at 7% APR for 5 Years
As you can see, the interest portion of the payment drops from over $145 on the first payment to under $3 on the last.
Frequently Asked Questions
What is the difference between an interest rate and APR?
The interest rate is simply the cost of borrowing the principal loan amount. The Annual Percentage Rate (APR) is a broader measure of the loan’s cost. It includes the interest rate plus most other fees associated with the loan, such as origination fees or closing costs, expressed as an annual percentage. For this reason, the APR is the most accurate number to use when comparing loan offers. Always ask for the APR.
How does my credit score affect my loan payment?
Your credit score is one of the most significant factors in determining the interest rate a lender will offer you. A higher credit score signals to lenders that you are a low-risk borrower, so they will offer you a lower APR. This can save you thousands of dollars over the life of a loan.
Example: Impact of Credit Score on a $30,000, 60-Month Auto Loan
As shown, having excellent credit could save over $11,000 in interest compared to a poor score for the same loan.
Is it better to choose a shorter or longer loan term?
This involves a trade-off between your monthly budget and the total cost of the loan.
Shorter Term: Higher monthly payments, but you pay significantly less total interest and own the asset sooner.
Longer Term: Lower, more manageable monthly payments, but you will pay much more in total interest over the life of the loan.
Concrete Example: A $20,000 loan at 8% APR.
Choosing the 3-year term saves you $1,770 in interest, but your monthly payment is over $220 higher.
What happens if I make extra payments on my loan?
Making extra payments is a powerful strategy. Unless specified otherwise by your lender, any amount you pay over your required monthly payment is applied directly to the principal balance. This reduces the balance faster, which in turn reduces the amount of future interest you’ll pay and shortens the time it takes to pay off the loan. Even an extra $25 or $50 a month can make a big difference.
Does this calculator work for mortgages?
While the basic loan calculation is the same, this calculator should not be used for mortgages. A mortgage payment includes more than just principal and interest; it typically includes property taxes, homeowners insurance, and sometimes private mortgage insurance (PMI). These components are known collectively as PITI. For an accurate home payment estimate, you should use a dedicated mortgage calculator.
Take the Next Step in Your Financial Plan
Knowing your potential payment is a great first step. Now, put that number into context.
