Loan Calculator

Calculate your monthly payments and total cost for any type of loan

Loan Payment Calculator

Find out how much your monthly payments will be and how much interest you'll pay over the life of the loan.

Optional extra amount to pay each period

Loan Payment Results

Monthly Payment: $0.00
Total Principal: $0.00
Total Interest: $0.00
Total Cost: $0.00
Number of Payments: 0
Payoff Date: January 2023
With Extra Payments:
You'll pay off your loan 0 months earlier
You'll save $0.00 in interest

Amortization Schedule

Payment # Payment Date Beginning Balance Payment Principal Interest Ending Balance

Understanding Loans and Financing

How Loans Work

A loan is a sum of money that is borrowed and expected to be paid back with interest. The lender (typically a financial institution) provides the initial amount (principal), and the borrower agrees to repay this amount plus interest over a specified period. The terms of repayment, including the interest rate, payment frequency, and loan duration, are specified in a loan agreement.

Key Loan Terms Explained

  • Principal: The original amount borrowed or the amount that remains unpaid
  • Interest Rate: The percentage charged on the principal, representing the cost of borrowing
  • Loan Term: The period over which the loan must be repaid
  • Monthly Payment: The amount paid each month, including portions for both principal and interest
  • Amortization: The process of paying off a loan with regular payments, gradually reducing the principal balance

Types of Interest Rates

Interest rates on loans can be structured in different ways:

  • Fixed Interest Rate: Remains the same throughout the loan term, providing predictable payments
  • Variable Interest Rate: Changes periodically based on a financial index, potentially resulting in changing payment amounts
  • Introductory/Teaser Rate: Low initial rate that increases after a specific period

Common Types of Loans

  • Mortgages: Long-term loans used to finance home purchases, typically with terms of 15-30 years
  • Auto Loans: Used to purchase vehicles, usually with terms of 3-7 years
  • Personal Loans: Unsecured loans for various purposes, often with terms of 1-5 years
  • Student Loans: Financing for education expenses, with various repayment options
  • Credit Cards: Revolving credit with minimum monthly payments and typically high interest rates on unpaid balances
  • Home Equity Loans: Secured by the equity in your home, often used for major expenses or debt consolidation

How Loan Payments Are Calculated

Most loans use an amortization formula to calculate payments. This ensures that each payment covers interest costs first, with the remainder reducing the principal. Early in the loan, a larger portion of each payment goes toward interest, while later payments mostly reduce principal.

The standard formula for calculating monthly payments on an amortized loan is:

Monthly Payment = P × [r(1+r)^n] / [(1+r)^n-1]

Where:

  • P = Principal (loan amount)
  • r = Monthly interest rate (annual rate divided by 12)
  • n = Total number of payments (loan term in years × 12)

The Impact of Additional Payments

Making additional payments toward the principal can significantly reduce the total interest paid and shorten the loan term. Even small extra payments, when made regularly, can lead to substantial savings over the life of the loan. Our calculator allows you to see the impact of additional payments on your specific loan.

Factors That Affect Loan Terms

  • Credit Score: Higher scores typically qualify for lower interest rates
  • Loan-to-Value Ratio: For secured loans, the ratio of the loan amount to the value of the collateral
  • Debt-to-Income Ratio: Your monthly debt payments divided by your gross monthly income
  • Loan Term: Shorter terms usually have lower interest rates but higher monthly payments
  • Market Conditions: Prevailing interest rates and economic factors

Tips for Responsible Borrowing

  • Only borrow what you need and can realistically repay
  • Shop around for the best interest rates and terms
  • Read and understand the loan agreement before signing
  • Pay on time to avoid late fees and negative credit impacts
  • Consider making additional payments when possible
  • Refinance when you can qualify for significantly better terms

Frequently Asked Questions About Loans

How can I get the best interest rate on a loan?

To secure the best interest rate:

  • Improve your credit score before applying by paying bills on time, reducing debt, and correcting any errors on your credit report
  • Shop around and compare offers from multiple lenders
  • Consider a shorter loan term, which typically comes with lower interest rates
  • Make a larger down payment if possible, reducing the loan-to-value ratio
  • Use collateral if available, as secured loans generally have lower rates than unsecured loans
  • Apply with a co-signer who has excellent credit if your own credit needs improvement

Remember that the best rate isn't always the best deal – also consider fees, terms, and customer service.

Should I choose a fixed or variable interest rate?

The choice between fixed and variable rates depends on your circumstances and risk tolerance:

Fixed rates are better when:

  • Current interest rates are low
  • You prefer predictable payments for budgeting
  • You plan to keep the loan for its full term
  • You're risk-averse and concerned about potential rate increases

Variable rates might be better when:

  • Current interest rates are high and expected to fall
  • You plan to pay off the loan relatively quickly
  • You can afford higher payments if rates increase
  • The variable rate offers a significantly lower starting rate

A common strategy is to start with a variable rate but refinance to a fixed rate if interest rates start rising substantially.

What's the difference between APR and interest rate?

While related, the interest rate and Annual Percentage Rate (APR) represent different things:

Interest rate is the basic percentage that lenders charge for borrowing the principal amount. It's the cost of the loan expressed as a percentage.

APR (Annual Percentage Rate) includes both the interest rate AND other costs associated with the loan such as:

  • Origination fees
  • Broker fees
  • Discount points
  • Application fees
  • Mortgage insurance premiums

The APR provides a more comprehensive picture of the total cost of borrowing and is usually higher than the interest rate. When comparing loans, the APR can be more useful for understanding the true cost, especially for mortgages and other loans with significant fees.

Should I pay off my loan early if I can afford to?

Paying off a loan early often makes financial sense, but consider these factors before making a decision:

Advantages of early repayment:

  • Save money on interest over the life of the loan
  • Reduce your debt-to-income ratio, which can help with future borrowing needs
  • Eliminate a monthly payment, freeing up cash flow
  • Gain peace of mind from being debt-free

Considerations before paying early:

  • Check if your loan has prepayment penalties
  • Compare the loan's interest rate to potential investment returns (if your loan has a low interest rate, investing might yield better returns)
  • Ensure you maintain adequate emergency savings
  • Consider whether you have higher-interest debt that should be prioritized first
  • For mortgages, consider potential tax benefits of mortgage interest deductions

A balanced approach might be making additional principal payments periodically while maintaining financial flexibility.

How does loan refinancing work and when should I consider it?

Refinancing involves replacing an existing loan with a new one, typically to secure better terms. Here's what you should know:

How refinancing works:

  1. You apply for a new loan
  2. If approved, the new loan pays off your existing loan
  3. You then make payments on the new loan according to its terms

Good reasons to refinance:

  • Lower interest rates: If rates have dropped significantly since you obtained your loan
  • Improved credit score: If your credit has improved and you can qualify for better terms
  • Change loan type: Switching from a variable to a fixed rate for more stability
  • Consolidate debt: Combining multiple loans into one, potentially at a lower rate
  • Shorten loan term: To pay off the loan faster and save on interest
  • Lower monthly payments: By extending the term (though this typically increases total interest)
  • Remove mortgage insurance: If your home equity has increased sufficiently

When refinancing might not make sense:

  • If the closing costs outweigh the potential savings
  • If you plan to sell/move soon
  • If you've already paid off most of your loan
  • If your credit score has decreased
  • If your loan has significant prepayment penalties

Use a refinance calculator to estimate potential savings and the break-even point when considering this option.