How to Calculate Loan Payments
A loan payment calculator uses the standard amortization formula to determine your fixed monthly payment based on three inputs: the principal (loan amount), the annual interest rate, and the loan term. Each monthly payment is split between interest and principal, with more going to interest at the beginning and more to principal as the loan matures.
- 1Monthly interest rate: 7% / 12 = 0.5833%
- 2Total payments: 5 x 12 = 60 months
- 3Monthly payment: $25,000 x [0.005833 x (1.005833)^60] / [(1.005833)^60 - 1]
- 4Monthly payment = $495.03
- 5Total paid: $495.03 x 60 = $29,702
- 6Total interest: $29,702 - $25,000 = $4,702
Monthly Payment Comparison Table
| Interest Rate | 3 Years | 5 Years | 7 Years | 10 Years |
|---|---|---|---|---|
| 5% | $749 | $472 | $354 | $265 |
| 6% | $761 | $483 | $365 | $278 |
| 7% | $772 | $495 | $377 | $290 |
| 8% | $783 | $507 | $389 | $303 |
| 9% | $795 | $519 | $401 | $317 |
| 10% | $807 | $531 | $414 | $330 |
How Extra Payments Save You Money
Making extra payments on your loan can dramatically reduce the total interest paid and shorten the payoff timeline. Even small additional payments make a significant difference because they go directly toward reducing the principal. On a $25,000 loan at 7% for 5 years, adding just $100/month in extra payments saves $814 in interest and pays off the loan 11 months early.
| Extra Payment | Monthly Total | Total Interest | Interest Saved | Payoff Timeline |
|---|---|---|---|---|
| $0 | $495 | $4,702 | $0 | 60 months |
| $50 | $545 | $4,116 | $586 | 54 months |
| $100 | $595 | $3,888 | $814 | 49 months |
| $200 | $695 | $3,144 | $1,558 | 41 months |
| $500 | $995 | $2,153 | $2,549 | 28 months |
On a $25,000 loan at 7%, paying an extra $100/month saves $814 in interest and pays off the loan nearly a year early. On larger loans like mortgages, the savings from extra payments can be tens of thousands of dollars.
Understanding Amortization
Loan amortization is the process of gradually paying off a loan through regular payments. In the early months, a large portion of each payment goes to interest. As you pay down the principal, more of each payment goes toward the balance. For example, on a $25,000 loan at 7%, the first payment allocates $146 to interest and $349 to principal, while the last payment allocates just $3 to interest and $492 to principal.
Types of Loans This Calculator Works For
- Personal loans (typically 3-7 years, 6-36% APR)
- Auto loans (typically 3-7 years, 5-15% APR)
- Student loans (10-25 years, 4-8% APR)
- Home equity loans (5-30 years, 6-10% APR)
- Small business loans (1-10 years, 6-25% APR)
- Any fixed-rate, fixed-term amortizing loan
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