Quick answer: A loan payment comes from the annuity formula: payment = P × r ÷ (1 − (1 + r)−n), where P is the amount borrowed, r is the monthly interest rate and n is the number of monthly payments. Borrowing $25,000 at 7.5% for 5 years costs $500.95 a month and $5,056.92 in total interest.
A loan calculator answers the first question every borrower has: what will this cost me each month, and how much will I pay in total? It works for car loans, personal loans, student loans and most other fixed-rate loans that use equal monthly payments.
Most people focus on the monthly payment, but total interest is the number that shows the real price of borrowing. A longer term lowers the payment and raises the total interest, sometimes by thousands. Use the year-by-year table under the results to see how much of your payments goes to interest and how much reduces the balance.
How the monthly payment is calculated
For a fixed-rate loan, the payment comes from the standard amortization formula. The monthly rate is the annual rate divided by 12, and the payment is the amount that clears the balance exactly at the end of the term.
M = monthly payment, P = loan amount
r = annual rate ÷ 12 ÷ 100, n = number of months
Each month, interest is charged on the balance still owed. Early payments are mostly interest, and the share that reduces the balance grows over time. Extra payments go entirely to principal, which lowers every later interest charge.
A worked example
Example. A $25,000 loan at 7.5% over 5 years has a monthly payment of $500.95. Across 60 payments you repay $30,056.92, of which $5,056.92 is interest. Paying an extra $100 a month ends the loan 11 months early and saves $1,013.61 in interest.
Real-world examples
Longer term, lower payment, higher cost. The same $25,000 at 7.5% costs $777.66 a month over 3 years, $500.95 over 5 years and $383.46 over 7 years. The total interest rises from $2,995.60 to $5,056.92 to $7,210.38. The lowest payment is the most expensive loan.
A little extra every month. Adding $100 a month to the 5-year loan clears it in 4 years 1 month instead of 5 years and saves $1,013.61 in interest.
How the interest rate changes the cost
| Interest rate | Monthly payment | Total interest |
|---|---|---|
| 5% | $471.78 | $3,306.85 |
| 7.5% | $500.95 | $5,056.92 |
| 10% | $531.18 | $6,870.57 |
| 15% | $594.75 | $10,684.90 |
$25,000 borrowed over 5 years. Each percentage point of interest adds roughly $300 to $350 in this example.
Common mistakes to avoid
- Comparing loans by the monthly payment alone. A longer term lowers the payment but raises the total interest, so compare the total cost of each option too.
- Using the APR as the interest rate. The payment is worked out from the rate on the loan agreement. The APR, which includes fees, is for comparing offers.
- Assuming extra payments go straight to principal. Some lenders apply them to the next installment instead, so confirm that extra money is marked “principal only”.
Go deeper: read our guide How Loan Payments Are Calculated, With Examples.
Frequently asked questions
Does this work for a car loan?
Yes. Enter the price minus your down payment as the loan amount, then the rate and term from your lender's offer. If fees are rolled into the loan, include them in the amount.
What is the difference between the interest rate and APR?
The interest rate is the cost of borrowing the money. APR also includes certain fees, so it is usually a little higher. Enter the interest rate here. If you only have the APR, the result will slightly overstate the payment.
Do extra payments really save that much?
They can. Interest is charged on the remaining balance, so every extra dollar paid early avoids interest on that dollar for the rest of the loan. Check that your lender applies extra payments to principal and does not charge a prepayment penalty.
Why is my lender's figure slightly different?
Lenders may round differently, count days instead of months, or add fees and insurance. Treat this result as a close estimate and rely on your loan agreement for exact figures.
People also search for this as: loan payment calculator, monthly loan payment calculator, personal loan calculator, car loan calculator, loan payoff calculator, extra payment calculator, how much interest will I pay on a loan.
Sources and further reading
- Annuity: the math behind loan payments (Wikipedia)
- CFPB: Owning a Home tools and guides
- Annual percentage rate (Wikipedia)
Formulas on this page are checked by automated tests against independent references. See how we test our tools.