Loan Calculator

What Is a Loan Calculator?

A loan calculator estimates what a loan really costs before you sign. Enter the amount you want to borrow, the annual interest rate and the length of the loan, and it returns your monthly payment, the total interest, and the total you will repay. It works for most everyday borrowing — personal loans, debt consolidation, business loans, and any other fixed-rate loan with equal payments — so you can compare offers on equal terms rather than guessing from an advertised rate.

Three Common Types of Loans

• Amortized loans — the kind most people mean by "loan." You make equal payments on a schedule until the balance hits zero. Mortgages, auto loans, student loans and personal loans all work this way.
• Deferred-payment loans — nothing is paid during the term, and principal plus accumulated interest comes due in one lump sum at the end. Some short-term commercial loans are structured like this.
• Bonds — the borrower repays a fixed face value at maturity. Zero-coupon bonds pay no interest along the way; they are sold at a discount and redeemed at face value.

This page focuses on the first type, the amortized loan, because it is by far the most common.

Worked Example

A $20,000 loan at 7.5% APR over 5 years comes out to $400.76/month — $24,045.54 total, including $4,045.54 in interest.

The Loan Payment Formula

M = P × [r(1 + r)ⁿ] ÷ [(1 + r)ⁿ − 1], where P is the principal, r is the interest rate per month (annual rate ÷ 12) and n is the total number of payments. Because the payment is fixed, the split between interest and principal changes over time: interest takes the biggest bite at the start, when the balance is highest, and principal gradually takes over.

Interest Rate, APR and Loan Term

The interest rate is what the lender charges for the use of its money, expressed as a yearly percentage. The APR (annual percentage rate) goes a step further by folding in certain fees, which makes it the better number for comparing offers. Savings products quote APY instead, which includes the effect of compounding on money you earn rather than money you owe.

The term is how long you have to repay. A longer term lowers the monthly payment but increases the total interest, because the balance stays outstanding for more months. A shorter term does the reverse. Try two or three terms side by side to see how much the length alone changes the total cost.

Secured vs. Unsecured Loans

A secured loan is backed by collateral — a house, a car, or a savings account — that the lender can take if you stop paying. Because the lender carries less risk, secured loans usually come with lower rates and larger limits. An unsecured loan, such as a personal loan or credit card, has no collateral, so lenders rely on your credit history and income and charge higher rates to cover the added risk.

Tips for Getting a Better Loan

• Compare offers from several lenders, using APR rather than the headline rate.
• Improve your credit score before applying; even a small rate drop saves real money over years.
• Ask about origination fees and prepayment penalties.
• Borrow only what you need — interest applies to every extra dollar.

For a specific purchase, the Mortgage Calculator and Auto Loan Calculator account for details this general tool does not, and the Compound Interest Calculator shows the same math working in your favor on savings.