Loan Calculator

What the Loan Calculator Does and Who It's For

This loan calculator turns three numbers — the amount you borrow, the interest rate, and the loan term — into a clear monthly payment, the total interest you'll pay over the life of the loan, and a full amortization schedule. It works for any fixed-rate installment loan: mortgages, auto loans, personal loans, and student loans.

It's built for anyone comparing offers or budgeting before they sign. If you also enter an extra payment, the tool shows how much interest you save and how many months you shave off the term, so you can see whether paying down early is worth it.

How It Works: The Amortization Formula

The monthly payment comes from the standard amortization formula:

PMT = P · r / (1 − (1 + r)^−n)

Here P is the principal (the amount borrowed), r is the monthly interest rate, and n is the total number of payments. The monthly rate is the annual rate divided by 12, and n is the number of years multiplied by 12. A 6% annual rate becomes r = 0.06 / 12 = 0.005.

Each payment is split between interest and principal. Interest for the month equals the remaining balance times r; the rest reduces the principal. Early on, most of the payment is interest; later, most goes to principal. Total interest is simply the sum of all payments minus the original principal: (PMT × n) − P.

Worked Example: A $20,000 Car Loan

Suppose you borrow $20,000 at 6% annual interest over 5 years (60 payments).

First find the inputs: r = 0.06 / 12 = 0.005 and n = 5 × 12 = 60. Plugging in: PMT = 20,000 × 0.005 / (1 − 1.005^−60) = 100 / 0.2586 ≈ $386.66 per month.

Over 60 months you pay 386.66 × 60 = $23,199.60, so total interest is about $3,199.60. In month one, interest is 20,000 × 0.005 = $100 and principal is $286.66; by the final months almost the entire payment reduces principal.

How Extra Payments Cut Interest and Term

Any amount paid above the required PMT goes straight to principal, which lowers the balance that future interest is charged on. The effect compounds, so even small extras add up.

Using the same $20,000 loan, adding $100 to every payment pays the loan off in roughly 47 months instead of 60 and cuts total interest to about $2,460 — a saving of around $740. The earlier in the loan you add extra, the bigger the impact, because the balance is highest then.

Practical Tips and Common Mistakes

A few details change the result more than people expect, so check these before trusting any number:

• APR vs. interest rate: APR bundles in fees and is best for comparing offers, but the payment formula uses the nominal interest rate. Mixing them up inflates or understates the payment.
• Confirm the compounding period. This calculator assumes monthly compounding, which is standard for U.S. consumer loans.
• A longer term lowers the monthly payment but raises total interest — sometimes substantially. Compare the total cost, not just the monthly figure.
• Check for prepayment penalties before making extra payments; some loans charge a fee for paying early.
• The result excludes taxes, insurance, and origination or processing fees unless you add them to the principal.