Loan Calculator

Enter the amount you want to borrow, the annual interest rate and the term in years, and the calculator returns the fixed monthly payment, the total you will repay and the total interest cost. It covers personal loans, car loans and any other fixed-rate loan repaid in equal monthly installments, and it recalculates as you type. Read the monthly payment as the amount leaving your account each month for the whole term, and the total interest as the premium you pay for spreading the cost over time rather than paying cash up front.

The payment formula

The monthly payment comes from the standard annuity formula — the amortization math behind mainstream fixed-rate installment lending, and the basis of the payment schedules disclosed under the US Truth in Lending Act:

M = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)

Here P is the principal, r is the monthly rate (the annual rate divided by 1,200) and n is the number of monthly payments. At a rate of exactly zero the formula reduces to P ÷ n, the principal split into equal parts.

Run the defaults through it: 25,000 at 6.4% over 5 years. The monthly rate is 6.4 ÷ 1,200 = 0.005333 and there are 60 payments. (1.005333)⁶⁰ comes to 1.37596, so the payment is 25,000 × 0.005333 × 1.37596 ÷ 0.37596 = 487.98. Sixty payments of that size total 29,279.01, which puts the interest cost at 4,279.01.

From ancient interest to the amortization table

Lending at interest is among the oldest financial practices on record. Cuneiform tablets from Mesopotamia record interest-bearing loans of silver and grain from well before 2000 BC, and the Code of Hammurabi, compiled in Babylon around 1750 BC, set legal ceilings on what a lender could charge — usually cited as 20 percent on loans of silver and one third on loans of grain. Those loans were seldom repaid in the level installments this calculator assumes. A borrower typically owed a lump sum at a harvest or a fixed date, closer to a modern balloon loan than to a monthly repayment plan.

The mathematics that makes a constant payment possible arrived much later. Richard Witt's Arithmeticall Questions, printed in London in 1613, was the first English book devoted entirely to compound interest, and it worked through tables for valuing annuities and property leases. The present-value-of-an-annuity reasoning in that tradition is exactly what the formula above inverts: rather than asking what a stream of fixed payments is worth today, it fixes today's loan amount and solves for the payment that clears it.

The name of the process describes what it does. Amortize comes through Old French amortir, to deaden or kill, from the Latin mors, death; to amortize a loan is to kill it off, one payment at a time. The financial sense of extinguishing a debt on a fixed schedule settled into English in the early nineteenth century.

Applying that math to everyday borrowing came later still. Through much of the nineteenth century, banks would not lend modest sums to working households, who turned instead to pawnshops and moneylenders, and borrowing for consumption rather than for a farm or a business was widely judged imprudent. Household Finance Corporation, founded by Frank Mackey in Minneapolis in 1878, is often credited as the first company to let a consumer repay a loan in regular monthly amounts rather than a lump sum on the due date, which it began doing in 1895. State reform followed: the Uniform Small Loan Law, first enacted by several states in 1917, created a licensed class of lender and capped charges on loans of 300 dollars or less at 3.5 percent a month, so that legal installment credit could displace loan sharks. The disclosure rules that make the total-interest figure on this page routine are newer again — the US Truth in Lending Act, passed in 1968 as Title I of the Consumer Credit Protection Act, and its Regulation Z required lenders to state the finance charge and a comparable annual percentage rate in writing.

How each payment splits

Every payment is identical, but the split inside it moves. Interest is charged on the balance still owed, so the interest share is at its largest in month one and shrinks with every payment after it. The first payment on the default loan carries 133.33 of interest and 354.65 of principal, so interest is only about 27 percent of it; by the final payment the interest portion is down to about 2.59. Term length drives that share far more than the rate does. Borrow the same 25,000 at the same 6.4% over 30 years instead of 5 and the first payment is about 85 percent interest, which is why the received wisdom that early payments are mostly interest belongs to long mortgages rather than to short personal loans. Either way the asymmetry is real: overpaying in the first year removes far more interest than the same overpayment near the end, and refinancing late in a loan saves less than the rate difference suggests.

Term length and the total bill

Stretching a loan over more years lowers each payment but raises the total interest, because the balance stays outstanding longer and keeps accruing. The default 25,000 at 6.4% costs 4,279 in interest over five years; the same loan over seven years drops the monthly payment to about 370 but pushes total interest above 6,000. The reverse trade holds too — a three-year term lifts the payment to 765 while cutting total interest to roughly 2,540. There is no universally right term, only the shortest one whose payment you can comfortably sustain.

The rate here is not APR

This calculator works from the nominal annual rate, compounded monthly. APR is a broader figure that folds arrangement fees and other compulsory charges into one yearly percentage. US lenders must disclose APR under Regulation Z, UK lenders under FCA consumer credit rules, and EU lenders under the Consumer Credit Directive, with the equivalent figure on mortgages labelled APRC under the separate Mortgage Credit Directive. With no fees the two numbers sit close together; add a 500 fee to the default loan and the true yearly cost climbs meaningfully above the 6.4% headline.

Flat rates and other terminology traps

UK and Australian car finance historically quoted flat rates, where interest is charged on the original balance for the whole term. A 6.4% flat rate on 25,000 over 5 years costs 25,000 × 0.064 × 5 = 8,000 — almost double the 4,279.01 that a 6.4% reducing-balance rate costs. In the US the product modeled here is called an installment loan or a fully amortizing loan; in the UK it is a repayment loan, as opposed to interest-only lending where the balance never falls. If a quote looks surprisingly cheap, confirm the rate is reducing balance, which is what this calculator assumes.

What the estimate leaves out

The figures assume a rate that never changes, payments that always arrive on time, and no charges beyond interest. A variable-rate loan, a missed payment that triggers a penalty, or an arrangement fee added to the balance will all move the real numbers. The model also treats every month as an equal compounding period and ignores the handful of days between drawdown and the first payment, which some lenders charge for separately. For a like-for-like comparison of offers, weigh the APR alongside the monthly payment rather than the headline rate alone.

Results are estimates from the standard amortization formula and exclude fees, insurance and rate changes, so confirm exact figures with your lender. See the site disclaimer.

Frequently asked questions

How do I calculate the monthly payment on a loan?

Multiply the amount borrowed by the monthly rate, then by (1 + r) raised to the number of payments, and divide by that same power minus one. For 25,000 at 6.4% over 5 years the result is 487.98 a month. The calculator does the arithmetic instantly and also shows the total interest, 4,279.01 in that case.

Is it cheaper to take a shorter loan term?

Almost always, if the payment fits your budget. Moving the default 25,000 loan at 6.4% from 5 years to 3 raises the payment from 487.98 to 765.09 but cuts total interest from 4,279 to about 2,543. You trade a higher monthly cost for a much lower total cost.

What is the difference between interest rate and APR on a loan?

The interest rate is the cost of borrowing the money itself, while APR folds mandatory fees into a single yearly figure so offers can be compared. A loan at 6.4% with a 500 arrangement fee has an APR noticeably above 6.4%. This calculator uses the plain interest rate, so account for fees separately when comparing offers.

How much of my payment goes to interest at the start?

Multiply the outstanding balance by the monthly rate. On the default loan the first payment includes 25,000 × 0.005333 = 133.33 of interest, about 27% of the 487.98 payment. Because the balance falls every month, that share shrinks steadily and is under 3 by the final payment.

Can I pay off a loan early to save interest?

Usually, and the earlier the better, because interest accrues on the outstanding balance. Overpaying 1,000 in month one of the default loan removes more future interest than the same 1,000 paid in year four. Check your agreement first, since some lenders charge early repayment fees — often one to two months of interest in the UK, and capped at 1% of the amount repaid early in much of the EU.