This loan calculator works for any fixed-rate installment loan — personal loans, debt consolidation loans, car loans, student loans, or home improvement financing. Enter the amount, interest rate, and term to see your monthly payment, total interest, and total amount repaid.
The yearly amortization table shows how each year of payments splits between principal and interest. Because interest is charged on the remaining balance, early payments are mostly interest and later payments are mostly principal — a pattern worth understanding before you sign any loan agreement.
The Loan Payment Formula
Fixed-rate loans use the standard amortization formula:
M = P × [r(1 + r)^n] / [(1 + r)^n − 1]
Where M is the monthly payment, P is the loan amount (principal), r is the monthly interest rate (annual rate ÷ 12), and n is the total number of monthly payments.
Each month, interest equals the current balance times the monthly rate. Your payment first covers that interest, and the remainder reduces the principal. As the balance shrinks, the interest portion shrinks with it, so an ever-larger share of the same fixed payment goes toward paying down the loan.
How Rate and Term Change What You Pay
Two loans for the same amount can cost wildly different totals depending on rate and term:
- Shorter term: higher monthly payment, much less total interest.
- Longer term: lower monthly payment, much more total interest.
- On a $20,000 loan at 8%, a 3-year term costs about $2,562 in interest, while a 7-year term costs about $6,186 — nearly 2.5 times as much.
- Personal loan APRs typically range from about 7% for excellent credit to 36% for poor credit, so improving your credit score before applying can save thousands.
- Watch for origination fees (often 1%–8% of the loan), which raise the effective cost beyond the stated APR.
Example: $20,000 Loan at 8% for 5 Years
Borrow $20,000 at 8% APR for 5 years (60 monthly payments). The monthly rate is 8% ÷ 12 = 0.6667%.
Plugging into the formula gives a monthly payment of about $405.53. Over 60 payments you repay roughly $24,332, meaning about $4,332 — or 21.7% of the amount borrowed — goes to interest.
In the first year, roughly $1,478 of your $4,866 in payments goes to interest; by the final year, interest drops to about $205 as the balance approaches zero.
Frequently Asked Questions
How is a monthly loan payment calculated?
The payment comes from the amortization formula M = P × [r(1 + r)^n] / [(1 + r)^n − 1], where P is the loan amount, r is the monthly interest rate, and n is the number of payments. It produces a fixed payment that fully pays off the loan, with interest, by the final month.
What is 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 certain fees like origination charges. APR is the better number for comparing loan offers because it reflects the true yearly cost.
Can I pay off a loan early to save interest?
Yes. Extra payments go straight to principal, which reduces every future month’s interest charge. Most personal loans have no prepayment penalty, but check your agreement — some lenders charge a fee for early payoff.
What credit score do I need for a personal loan?
Most lenders require a score of at least 580–640, but the best rates go to borrowers above 720. With fair credit you might pay 15%–25% APR versus 7%–12% with excellent credit, so the score difference can double your interest cost.
Is it better to choose a shorter or longer loan term?
Choose the shortest term with a payment you can comfortably afford. A longer term lowers the monthly payment but increases total interest substantially — on a $20,000 loan at 8%, stretching from 5 to 7 years cuts the payment by about $94 but adds roughly $1,854 in interest.