A loan calculator works out your fixed monthly payment from three numbers: the amount you borrow, the annual interest rate and the loan term. It also shows the total interest and the total amount you will repay, which is the figure that tells you what the loan really costs.
Our free loan calculator uses the standard amortization formula behind most mortgages, car loans and personal loans, and it updates as you type. Below you will find that formula, a step-by-step worked example and the comparisons worth running before you sign anything.
What a loan calculator tells you
Most consumer loans are amortizing: you pay the same amount every month, each payment covers that month's interest first, and the rest reduces the balance. Early payments are mostly interest, later ones mostly principal. A loan calculator gives you four numbers:
- Monthly payment: the fixed amount due every month.
- Principal: the amount you borrowed.
- Total interest: what the lender earns over the full term.
- Total cost: principal plus interest, the full amount you hand over.
How to calculate a monthly loan payment
The standard formula for a fixed-rate loan repaid in equal monthly installments is:
M = P × [ i(1 + i)^n ] / [ (1 + i)^n − 1 ]M= monthly paymentP= principal, the amount borrowedi= monthly interest rate (annual rate ÷ 100 ÷ 12)n= number of monthly payments (years × 12)
Worked example: a $250,000 mortgage at 5.5% for 30 years
- Convert the rate to a monthly decimal: 5.5 ÷ 100 ÷ 12 = 0.0045833.
- Count the payments: 30 × 12 = 360.
- Work out the growth factor: (1.0045833)360 ≈ 5.1874.
- Apply the formula: 250,000 × (0.0045833 × 5.1874) ÷ (5.1874 − 1) = $1,419.47 per month.
Over 360 payments you repay $511,010.10, so the total interest is $261,010.10, slightly more than the amount borrowed. In the first month, $1,145.83 of the payment is interest and only $273.64 reduces the balance. That split slowly reverses as the balance shrinks.
How the interest rate and loan term change the total cost
The rate and the term move the total cost far more than most borrowers expect. Here is the same $250,000 loan under four scenarios:
| Scenario | Monthly payment | Total interest | Total cost |
|---|---|---|---|
| 30 years at 4.5% | $1,266.71 | $206,016.78 | $456,016.78 |
| 30 years at 5.5% | $1,419.47 | $261,010.10 | $511,010.10 |
| 30 years at 6.5% | $1,580.17 | $318,861.22 | $568,861.22 |
| 15 years at 5.5% | $2,042.71 | $117,687.55 | $367,687.55 |
One percentage point on the rate changes the payment by about $150 to $160 a month and the total interest by roughly $55,000 to $58,000. Halving the term from 30 to 15 years raises the payment by $623.24 but cuts total interest by $143,322.55.
The same trade-off applies to smaller loans. A $20,000 car loan at 6% costs $608.44 a month over 3 years ($1,903.79 interest), $386.66 over 5 years ($3,199.36 interest) and $292.17 over 7 years ($4,542.37 interest). The longest term has the most comfortable payment and the highest price.
How to use the loan calculator
- Open the free loan calculator.
- Enter the Loan Amount: what you will actually borrow after any down payment or trade-in. The math works in any currency; the dollar sign is only a label.
- Enter the Interest Rate (%) as the annual rate, for example
5.5. - Enter the Loan Term (Years) as a whole number of years.
- Read the Loan summary: the monthly payment at the top, then the principal, total interest and total cost. Results update as you type, so change one input at a time to compare offers side by side.
Tips for comparing loan offers
- Compare the APR as well as the rate. The annual percentage rate folds certain lender fees into a yearly figure, so it is a fairer way to compare offers. Use the interest rate in the calculator to get the payment, and the APR to rank lenders.
- Remember what the payment leaves out. The result covers principal and interest only. Mortgages often add property tax, insurance and other fees to the monthly bill.
- Check the payment against your income. Convert your pay to a monthly figure with the salary converter and see what share of it the payment takes. Our guide on converting hourly and annual pay shows how.
- Test a shorter term. If the higher payment fits your budget, the interest saving is usually large. Ask whether extra payments are allowed without a prepayment penalty, since they shorten the loan in the same way.
- Price 0% offers separately. The calculator needs a rate above zero. For a true 0% loan, divide the amount by the number of months.
- Think in real terms. A fixed payment gets lighter as prices and wages rise. See how inflation affects the value of money, and use the inflation calculator to put past figures in today's dollars.
Interest on a loan is the same force that grows savings, working in the other direction. Our explainer on how compound interest works and the compound interest calculator show the saving side of the equation.
The calculator gives estimates for fixed-rate loans. Your lender's figures can differ slightly because of fees, rounding and payment dates, so treat the result as a planning number, not a quote or financial advice.
Frequently asked questions
How do I calculate a monthly loan payment?
Use the formula M = P × [i(1 + i)^n] / [(1 + i)^n − 1], where P is the amount borrowed, i is the annual rate divided by 12 and n is the number of monthly payments. A $250,000 loan at 5.5% over 30 years works out to $1,419.47 a month.
Does a loan calculator work for mortgages, car loans and personal loans?
Yes. It works for any fixed-rate loan repaid in equal monthly installments, which covers most mortgages, auto loans and personal loans. It does not model variable-rate loans, interest-only loans or credit card balances.
Is a longer loan term better?
A longer term lowers the monthly payment but raises the total interest. A $250,000 loan at 5.5% costs $1,419.47 a month over 30 years and $2,042.71 over 15 years, but the 30-year loan costs $143,322.55 more in interest.
How much does a 1% lower interest rate save?
On a $250,000, 30-year loan, dropping from 5.5% to 4.5% cuts the payment by $152.76 a month and total interest by $54,993.32. The saving grows with the loan amount and the length of the term.
Does the monthly payment include taxes and insurance?
No. A loan calculator returns principal and interest only. For a mortgage, add property tax, homeowners insurance and any mortgage insurance or association fees to estimate the full monthly housing cost.
What is the difference between the interest rate and the APR?
The interest rate sets your monthly payment. The APR (annual percentage rate) combines the interest rate with certain upfront fees, so it is usually higher and is the better number for comparing loans from different lenders.