Calculate your monthly payment and total loan cost
Loan payments are calculated using an amortisation formula that spreads repayment evenly over the loan term. Each monthly payment covers two things: interest owed on the outstanding balance, and a portion of the principal. In the early months, most of your payment goes to interest. As the balance decreases, more of each payment reduces the principal.
Monthly payment = P × r / (1 − (1 + r)^−n)
Where P is the loan amount, r is the monthly interest rate (annual rate ÷ 12), and n is the total number of payments.
Even small differences in interest rate have a significant impact on total repayment. For a $20,000 loan over 5 years:
| Interest rate | Monthly payment | Total interest | Total paid |
|---|---|---|---|
| 3% | $359 | $1,561 | $21,561 |
| 5% | $377 | $2,645 | $22,645 |
| 8% | $406 | $4,332 | $24,332 |
| 12% | $445 | $6,690 | $26,690 |
A longer loan term reduces your monthly payment but significantly increases the total interest paid. For a $15,000 loan at 6%:
| Loan term | Monthly payment | Total interest |
|---|---|---|
| 2 years | $665 | $951 |
| 3 years | $456 | $1,432 |
| 5 years | $290 | $2,396 |
| 7 years | $220 | $3,441 |
The 7-year loan has a payment $445 lower per month than the 2-year loan — but costs $2,490 more in total interest. Whether the lower payment or the lower total cost matters more depends on your cash flow situation.
Extra payments reduce the principal faster, which reduces the interest charged in subsequent months. Even small additional payments have a meaningful impact over the life of a loan. Paying an extra $50 per month on a $20,000, 5-year loan at 6% saves approximately $300 in interest and reduces the term by about 4 months.
Before making extra payments, check your loan agreement for prepayment penalties — some lenders charge a fee for paying off early, though this is less common on personal loans than on some mortgages.
The interest rate shown in loan offers is not always the full cost of borrowing. The Annual Percentage Rate (APR) includes the interest rate plus fees — origination fees, closing costs, and other charges. Always compare APR rather than interest rate alone when comparing loan offers. A loan with a lower interest rate but high origination fees can cost more than one with a slightly higher rate and no fees.
Use the amortisation formula: multiply the loan amount by the monthly interest rate, divide by 1 minus (1 plus the monthly rate) to the power of negative total payments. The calculator above does this instantly — enter your loan amount, interest rate, and term to see the result.
Missing a payment typically triggers a late fee and may be reported to credit bureaus after 30 days, damaging your credit score. Interest continues to accrue on the outstanding balance. Contact your lender immediately if you anticipate difficulty making a payment — many offer hardship programmes or payment deferrals.
A shorter term means higher monthly payments but less total interest paid. A longer term means lower monthly payments but more interest overall. Choose based on what your budget can comfortably support — an unaffordable short-term payment that leads to default costs far more than a manageable long-term payment.
No. This calculator shows principal and interest only. Origination fees, insurance, and other charges are not included. Add these to the total paid figure to get the true cost of borrowing.
A secured loan is backed by collateral — an asset the lender can claim if you default (car loan, mortgage). An unsecured loan has no collateral (personal loan, credit card). Secured loans typically have lower interest rates because the lender has less risk.