Loan Calculator

How a Loan Payment Works

When you borrow money, you pay it back in equal monthly chunks over a set time. Each payment covers a bit of the interest (the cost of borrowing) plus a bit of the principal (the amount you borrowed). The formula finds the steady payment that clears the whole loan exactly by the end of the term.

The bar under the calculator splits the total you pay into the loan amount (blue) and the interest (green). A longer term means smaller monthly payments but more interest overall, because you borrow for longer. This is an estimate - real loans also add fees, insurance, and taxes.

Loan Payment Formula

For a standard amortized loan:

$$\text{payment} = \frac{P \cdot r \cdot (1 + r)^n}{(1 + r)^n - 1}$$

P is the loan amount, r is the monthly interest rate, and n is the number of monthly payments.

Worked Example

Suppose the loan amount is 25,000, the annual rate is 7.5%, and the term is 5 years.

1. Convert the annual rate to a monthly rate: 7.5% / 12.
2. Convert the term to months: 5 x 12 = 60.
3. Apply the loan payment formula.

The estimated monthly payment is about 500.95.

What to Watch

• Fees, insurance, taxes, and prepayment rules may change the real cost.
• Variable-rate loans can change over time.
• A longer term usually lowers the monthly payment but raises total interest.