Loan Payment Calculator
Calculate monthly payments for mortgages, auto loans, personal loans, and student loans. Get detailed amortization schedules showing how much goes to principal vs. interest each month.
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What is a Loan Payment?
A loan payment is a fixed monthly amount you pay to a lender to repay borrowed money over a specified period. Each payment consists of two components: principal (the amount borrowed) and interest (the cost of borrowing). The payment amount is calculated using an amortization formula that ensures the loan is fully paid off by the end of the loan term.
For most loans, payments remain constant throughout the loan term (fixed-rate loans). However, the allocation between principal and interest changes over time. Early payments are primarily interest, while later payments go more toward principal. This is called amortization, and understanding it helps you make informed decisions about prepayment and refinancing.
Your actual monthly housing cost may include additional expenses beyond principal and interest, such as property taxes, homeowners insurance, HOA fees, and private mortgage insurance (PMI) if your down payment is less than 20%. These additional costs are often escrowed and paid together with your mortgage payment.
How to Use the Loan Payment Calculator
Step 1: Enter Loan Amount
Input the total amount you're borrowing. For a home purchase, this is the purchase price minus your down payment. For auto loans or personal loans, it's the full amount you need to borrow.
Step 2: Enter Interest Rate
Input your annual interest rate as a percentage. This is the rate quoted by your lender. If you're comparing offers, use the APR for a more accurate comparison that includes fees and other costs.
Step 3: Choose Loan Term
Select your loan duration in years. Common terms are 30 years (mortgages), 15 years (shorter mortgages), 5-7 years (auto loans), or 3-5 years (personal loans). Shorter terms mean higher payments but less total interest.
Step 4: Review Results
View your monthly payment, total interest paid over the loan life, and full amortization schedule. The schedule shows exactly how each payment is split between principal and interest.
Understanding Loan Amortization
Amortization is the process of gradually paying off a loan through regular, equal payments over time. Each payment includes both principal and interest, but the ratio changes as the loan progresses.
Early Payments
In the first years of your loan, most of each payment goes toward interest because you owe the full principal amount. For a 30-year mortgage, the first payment might be 80% interest and only 20% principal.
Later Payments
As you pay down the balance, less interest accrues each month, so more goes toward principal. By the end of your loan, nearly all of each payment reduces the principal balance.
This front-loaded interest structure is why making extra principal payments early in the loan has such a dramatic effect on total interest paid. Even small additional payments in the first few years can save thousands in interest.
Frequently Asked Questions
How is a loan payment calculated?
Loan payments are calculated using the amortization formula which factors in the principal amount, interest rate, and loan term. The formula ensures each payment covers the interest owed while also paying down principal, with payments remaining constant throughout the loan.
What is amortization?
Amortization is the process of spreading loan payments over time. Early in the loan, most of your payment goes toward interest. As you pay down the principal, more of each payment goes toward reducing the balance. This creates a schedule showing exactly how your loan will be paid off.
What's 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 other costs like origination fees and mortgage insurance. APR gives a more complete picture of the true cost of borrowing.
Should I choose a shorter or longer loan term?
Shorter terms (15 years vs 30 years) have higher monthly payments but much lower total interest costs. Choose based on your budget and financial goals. A 15-year mortgage typically has lower interest rates too, compounding the savings.
How can I pay off my loan faster?
You can pay off your loan faster by: making extra principal payments, switching to bi-weekly payments (26 half-payments = 13 full payments per year), refinancing to a shorter term, or making one extra payment per year.
What is PMI and when do I need it?
Private Mortgage Insurance (PMI) is required on conventional mortgages when you put down less than 20%. PMI typically costs 0.5-1% of the loan amount annually and can be removed once you reach 20% equity.