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Thinking about a loan and want to know what the monthly payments would actually be?

Calculate monthly payments, total interest, and see a full amortization schedule.

Loan Calculator

Calculate monthly payments, total interest, and view amortization schedule

Understanding Loan Calculations

When you take out a loan, you borrow a principal amount and agree to pay it back with interest over a set period. Your monthly payment depends on three factors: the loan amount (principal), the interest rate, and the loan term (duration).

How Monthly Payments Are Calculated

Most loans use amortization — each monthly payment covers both interest and principal. Early in the loan, most of your payment goes toward interest. Over time, more goes toward principal. The formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where P = principal, r = monthly rate, n = total payments.

Fixed vs Variable Rate Loans

Fixed-rate loans keep the same interest rate for the entire term — predictable payments, easier to budget. Variable-rate loans (adjustable-rate mortgages) can change based on market conditions — may start lower but carry risk of increasing payments over time.

Common Mistakes

  • ✗Confusing APR with interest rate — APR includes fees
  • ✗Only looking at the monthly payment without considering total interest paid
  • ✗Not accounting for extra payments or early payoff penalties

Pro Tips

  • ✓Even small extra monthly payments can save thousands in interest
  • ✓A shorter loan term means higher monthly payments but less total interest
  • ✓Use an amortization schedule to see how payments split between principal and interest

Real-World Examples

Mortgage comparison

$300k at 6.5% for 30 years = $1,896/month, $382k total interest

Auto loan

$25k at 5% for 5 years = $472/month

Extra payments

Adding $200/month to a mortgage can save $50k+ in interest

Uses the standard amortization formula: M = P × [r(1+r)n] / [(1+r)n - 1], where P = loan amount, r = monthly rate, n = total months.

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About Loan Calculator

How Loan Payments Are Calculated

The standard loan payment formula calculates the fixed monthly payment required to fully amortize a loan over a specified term. The formula is: M = P × [r(1+r)n] / [(1+r)n - 1], where M is the monthly payment, P is the principal (loan amount), r is the monthly interest rate (annual rate / 12 / 100), and n is the total number of payments.

In the early months of a loan, most of each payment goes toward interest. As the loan matures, a larger portion of each payment is applied to the principal. This is visualized in the amortization schedule, which shows the breakdown of principal and interest for each payment. Understanding this breakdown helps borrowers see the true cost of financing and the impact of making extra payments.

Fixed Rate vs Variable Rate Loans

Fixed rate loans maintain the same interest rate throughout the life of the loan. This means your monthly payment remains constant, making budgeting easier. Fixed rate loans are ideal when interest rates are low or expected to rise. Common examples include 30-year and 15-year fixed mortgages and most auto loans.

Variable rate (or adjustable rate) loans have interest rates that can change periodically based on market conditions. These loans often start with a lower rate than fixed loans but carry the risk of higher payments if rates increase. Variable rates are typically tied to a benchmark index such as the prime rate or LIBOR. Borrowers considering variable rate loans should ensure they can afford the maximum potential payment before committing.

This utility is provided for informational purposes only. KnowKit is not responsible for any errors in the output.

Frequently Asked Questions

What's the difference between APR and interest rate?

The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate PLUS fees and other costs, giving you the true total cost of the loan. Always compare loans using APR, not just the interest rate.

How does the loan term affect total cost?

Shorter terms mean higher monthly payments but less total interest paid. Longer terms mean lower monthly payments but significantly more total interest. For example, a $200,000 loan at 6% costs $231,676 in interest over 30 years but only $77,431 over 15 years.

Should I pay off my loan early?

It depends on the interest rate and your other financial priorities. If your loan has a high interest rate (above 5-6%), paying it early saves significant money. If the rate is low, you might earn more by investing the extra money. Check for prepayment penalties first.

What's a good debt-to-income ratio?

Lenders prefer a total debt-to-income (DTI) ratio below 36%, with housing costs below 28%. A lower DTI means you're more likely to get approved and get better rates.

How much do extra payments really save on a mortgage?

Extra payments go directly toward principal, reducing total interest and loan term. For a $300,000 mortgage at 6.5% over 30 years, adding just $200/month saves approximately $52,000 in interest and pays off the loan 6 years early. Even small amounts make a significant difference over time.

What is an amortization schedule and why does it matter?

An amortization schedule shows the breakdown of every payment into principal and interest over the life of the loan. In the early years, most of your payment covers interest. By year 15 of a 30-year mortgage, the split approaches 50/50. This helps you understand the true cost of borrowing and the impact of extra payments.

Should I choose a 15-year or 30-year mortgage?

A 15-year mortgage has higher monthly payments but saves substantially on interest. For example, on $300,000 at 6.5%, a 15-year loan costs about $170,000 in total interest vs. $382,000 for 30 years. Choose 15 years if you can afford the higher payments and want to build equity faster, or 30 years for lower payments and financial flexibility.