How the payment is calculated
A fixed-rate loan is paid off with equal monthly payments. Each month, interest is charged on the balance you still owe, and the rest of the payment reduces that balance. The payment is set so the balance reaches exactly zero on the last month.
r = APR ÷ 12 ÷ 100 (the monthly rate)
n = number of monthly payments
Payment = amount × r ÷ (1 − (1 + r)−n)
At 0% APR: payment = amount ÷ n
Each month: interest = balance × r, principal = payment − interest
Interest is rounded to the cent every month, the way lenders post it, and the last payment is adjusted by a few cents so the balance ends at exactly $0.00.
Worked example: a $25,000 car loan at 7% for 5 years
The monthly rate is 7 ÷ 12 = 0.5833%, and there are 60 payments. The formula gives $495.03 a month. In month one, interest is $25,000 × 0.005833 = $145.83, so $349.20 goes to the balance, leaving $24,650.80. Over the full term you pay $4,701.82 in interest (the 60th payment is $495.05 to clear the rounding).
Add $50 a month and the loan is gone in 54 months instead of 60, saving $522.63 in interest. On a larger loan the effect is bigger: $100 extra a month on a $200,000 mortgage at 6% for 30 years ends it 65 months early and saves $49,138.85.
What changes the total cost most
- The term. A longer term lowers the payment but raises the total interest, because the balance stays high for longer. The CFPB's explainer on amortization notes that early payments go mostly toward interest.
- The rate. Compare loans by APR, which the CFPB describes as the interest rate plus additional fees.
- Extra payments early on. Money paid toward principal in the first years removes interest that would have been charged on it for the rest of the loan.
This is an estimate for a standard fixed-rate, fully amortizing loan with monthly payments. Adjustable-rate loans, interest-only periods, balloon payments and loans that charge interest daily will differ. Mortgage payments often also include taxes and insurance, which are not counted here.
Questions people ask
How is a monthly loan payment calculated?
Divide the APR by 12 to get the monthly rate r, then payment = amount × r ÷ (1 − (1 + r) to the power of minus the number of months). A $25,000 loan at 7% APR over 60 months costs $495.03 a month.
Why does so little of my first payment go to the balance?
Interest is charged on what you still owe, and you owe the most at the start. On a $25,000 loan at 7%, the first month's interest is $145.83, so only $349.20 of the $495.03 payment reduces the balance. By the last payment, interest is under $3.
What happens at 0% APR?
There is no interest, so the payment is the amount divided by the number of months. $12,000 over 48 months is $250.00 a month. When the amount does not divide evenly, the last payment absorbs the odd cents.
Do extra payments always go to the principal?
Not automatically. Some lenders apply extra money to the next payment instead of the balance. Tell your lender in writing that the extra amount should reduce the principal, and check that your loan has no prepayment penalty.
Is APR the same as the interest rate?
Not always. The Consumer Financial Protection Bureau describes APR as the interest rate plus certain fees, so it is usually a little higher. This calculator uses whatever rate you enter for the interest. To see fees reflected, enter the APR from your loan disclosure.