Loan Calculator

How to Use the Loan Calculator

Enter your loan amount, annual interest rate, and loan term in years, then click "Calculate" to get your results. The calculator instantly shows your monthly payment, total payment over the entire loan, and the total interest you will pay. A visual bar chart illustrates the proportion of principal to interest in your total payment.

Understanding the Loan Amortization Formula

Fixed-rate loan payments are calculated using the amortization formula. This formula ensures that each monthly payment is the same amount throughout the life of the loan. In the early years, a larger portion of each payment goes toward interest. Over time, more of each payment goes toward paying down the principal balance.

The formula is: M = P × [r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments (term in years multiplied by 12).

Types of Loans

Mortgages

Mortgages are the most common type of large loan. They typically come in 15-year or 30-year terms with fixed or adjustable interest rates. A 30-year fixed-rate mortgage offers lower monthly payments but costs significantly more in total interest compared to a 15-year mortgage.

Auto Loans

Auto loans typically range from 3 to 7 years. Shorter terms (36-48 months) result in higher monthly payments but lower total interest. New car loans typically have lower interest rates than used car loans.

Personal Loans

Personal loans are unsecured loans used for consolidating debt, home improvements, medical expenses, or other purposes. Terms usually range from 1 to 7 years, with interest rates depending on your credit score.

Student Loans

Student loans can be federal or private, with terms typically ranging from 10 to 25 years. Federal student loans often have fixed rates and offer income-driven repayment plans, while private loans may have variable rates.

How Interest Rate Affects Your Loan

Even small differences in interest rate can have a dramatic impact on the total cost of a loan. For example, on a $250,000 30-year mortgage, the difference between a 6% and 7% rate is approximately $60,000 in total interest paid. This is why shopping for the best rate is crucial.

Strategies to Save on Interest

• Choose a shorter term: A 15-year mortgage costs far less in interest than a 30-year mortgage, even though monthly payments are higher.
• Make extra payments: Even one extra payment per year on a mortgage can cut years off the loan and save thousands in interest.
• Refinance when rates drop: If interest rates fall significantly below your current rate, refinancing can reduce your monthly payment and total interest.
• Improve your credit score: A higher credit score qualifies you for lower interest rates, so maintaining good credit is essential before applying for a loan.
• Make a larger down payment: Borrowing less reduces both your monthly payment and total interest.

Tips for Borrowers

• Use this calculator to compare different loan scenarios before applying.
• Remember that the monthly payment does not include property taxes, insurance, or PMI for mortgages — the actual housing cost will be higher.
• Consider the total cost of the loan, not just the monthly payment, when making borrowing decisions.
• Pre-qualify with multiple lenders to compare rates and terms before committing.