How the loan payment is calculated
A fixed-rate installment loan (car loan, personal loan, mortgage) is repaid in equal monthly payments. Each payment first covers the interest that accrued on the outstanding balance during the month, and the rest reduces the balance. Because the balance falls, the interest share shrinks and the principal share grows over the life of the loan; that pattern is amortization, and the schedule below the calculator shows it month by month.
Worked example (pre-filled). Borrowing $20,000 at 6.5% APR for 5 years: the monthly rate is 6.5% ÷ 12 = 0.5417%, the number of payments is 60, and the standard formula gives a payment of $391.32. Of the first payment, $108.33 is interest and $282.99 is principal. Over the term the borrower pays $23,479.43, of which $3,479.43 is interest.
The rate used here is the note rate applied monthly, which is how most US consumer loans accrue. A lender's disclosed APR can be slightly higher than the note rate if it includes fees; enter whichever you want to test. Extra payments shorten the schedule; the extra payment calculator shows by how much. This page computes; it does not recommend a loan, lender, investment or tax position.
Formula and assumptions
payment = P × r ÷ (1 − (1 + r)−n) (r = 0: payment = P ÷ n)
each month: interest = balance × r; principal = payment − interest; balance −= principal
- Interest compounds monthly on the outstanding balance, with no fees, insurance or prepayment penalties.
- The payment is rounded to the cent and the final payment is adjusted so the balance ends at exactly zero, which is what lenders do.
- Payments are assumed to be made on time at the end of each month.
Frequently asked questions
What is the monthly payment on a $20,000 loan at 6.5% for 5 years?
$391.32 a month. Total interest over 60 payments is $3,479.43 (the last payment is a few cents larger because the others are rounded down to the cent).
What is the loan payment formula?
Payment = P × r ÷ (1 − (1 + r)^−n), where P is the amount borrowed, r the monthly interest rate (APR ÷ 12) and n the number of monthly payments.
What is an amortization schedule?
A table listing every payment with its interest portion, principal portion and remaining balance. Early payments are mostly interest; later ones mostly principal.
Does a longer term lower the payment?
Yes, but it raises the total interest. $20,000 at 6.5% costs $3,479 in interest over 5 years and more over 7, because the balance stays outstanding longer.
Why is my lender’s payment slightly different?
Lenders may use daily interest accrual, a first-payment date more or less than a month after funding, or include fees in the financed amount.
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Sources
This calculator gives general estimates from the figures you enter. It is not tax, legal, payroll or financial advice. See our disclaimer.