How does the loan calculator work?
This calculator uses the standard amortization formula that banks and lenders use for fixed-rate loans. Every monthly payment is the same amount, but its composition changes over time: early payments are mostly interest, and later payments are mostly principal. The calculator computes each month on the actual running balance, so the payoff schedule reconciles to the cent.
Results show principal and interest only. Real loan payments may also include taxes, insurance, or fees depending on the loan type — check with your lender for the full amount.
The amortization formula
M = P × [ r(1 + r)n ] ÷ [ (1 + r)n − 1 ] P = loan amount (principal) r = monthly interest rate (annual rate ÷ 12 ÷ 100) n = total number of monthly payments Worked example
P = 25,000 r = 6.5 ÷ 12 ÷ 100 = 0.005417 n = 60 (1 + r)60 = 1.38282 M = 25,000 × (0.005417 × 1.38282) ÷ 0.38282 M = $489.15 per month Total paid: 60 × $489.15 ≈ $29,349 → interest ≈ $4,349 For a 0% loan the formula simplifies to the loan amount divided by the number of payments — a $12,000 interest-free loan over 24 months is exactly $500 per month.
Why early payments are mostly interest
Interest each month is charged on the remaining balance. At the start, the balance is the full loan amount, so a large share of the payment goes to interest. As the balance shrinks, less of each identical payment is interest and more is principal. On a 30-year mortgage, more than half of the first year's payments is typically interest; in the final year almost all of it is principal. The payoff schedule below the results makes this visible year by year.
Why the final payment can differ
Monthly payments are rounded to the cent, so paying the exact same amount every month slightly over- or under-shoots the balance by the end. Lenders adjust the last payment so the balance lands at exactly zero. This calculator does the same — when the final payment differs from the regular payment, it is shown as a separate line so you can match it against your loan statement.
Common loan scenarios
Monthly payments for typical loan amounts, rates, and terms.
| Loan | Rate | Term | Monthly | Total interest |
|---|---|---|---|---|
| $10,000 | 8% | 3 years | $313.36 | $1,281 |
| $25,000 | 6.5% | 5 years | $489.15 | $4,349 |
| $35,000 | 7% | 6 years | $596.72 | $7,963 |
| $50,000 | 9% | 7 years | $804.45 | $17,574 |
| $200,000 | 6.5% | 15 years | $1,742.21 | $113,599 |
| $300,000 | 7% | 30 years | $1,995.91 | $418,524 |
The long-term rows show why term length matters so much: the $300,000 loan over 30 years costs more in interest than the original loan amount itself.
Frequently asked questions
What is loan amortization?
Amortization is the process of paying off a loan with equal periodic payments, where each payment covers that month's interest plus a portion of the principal. The payment amount stays constant, but the interest portion shrinks and the principal portion grows as the balance decreases.
Does this work for mortgages and car loans?
Yes. Any fixed-rate loan with equal monthly payments follows the same amortization math — mortgages, auto loans, personal loans, and most student loans. Note that mortgage payments often bundle property taxes and insurance on top of principal and interest, which this calculator does not include.
What is the difference between interest rate and APR?
The interest rate is the cost of borrowing the principal. APR (Annual Percentage Rate) includes the interest rate plus certain fees and closing costs, expressed as a yearly rate — so APR is usually slightly higher. This calculator uses the interest rate. If you enter an APR instead, the result approximates your payment including financed fees.
Can I calculate a 0% interest loan?
Yes. Enter 0 as the rate and the payment is simply the loan amount divided by the number of months. 0% financing is common for promotional car deals and retail installment plans.
Why is my final payment slightly different?
Because payments are rounded to whole cents, the fixed monthly amount doesn't divide the balance perfectly. The last payment is adjusted up or down by a small amount so the loan ends at exactly zero. Lenders do the same on real loans, which is why your bank's final payment figure differs from the regular one.