How a loan payment is built
Most personal, auto and home loans are amortizing loans: one fixed monthly payment that covers the month's interest first, with whatever is left reducing your balance. Because interest is charged on the current balance, the interest slice is biggest in month one and shrinks every month after — your payment stays the same, but more and more of it attacks the principal. This calculator runs that exact month-by-month process, so every figure you see matches how a lender's schedule is built.
The loan payment formula
Where P is the amount borrowed, r is the monthly rate (annual rate ÷ 12), and n is the number of monthly payments. This is the same formula behind EMI and mortgage calculations — an amortizing loan by any name uses the same math.
Three numbers to compare before you borrow
- Monthly payment — can your budget carry it in a bad month, not just a good one?
- Total interest — the real price of the loan. A longer term always raises it, even when the monthly payment looks friendlier.
- Payoff date — when you will actually be free of the debt. Extra payments pull this date forward surprisingly fast.
Why extra payments work so well
An extra payment goes entirely to principal (on most loans), so every future month's interest is calculated on a smaller balance. On a $25,000 loan at 7% over 5 years, adding $100 a month saves $939.00 in interest and clears the loan 11 months early. The effect is far bigger on long loans like mortgages — try your numbers above and watch the payoff date move.
Worked example
You borrow $25,000 at 7% for 5 years. The monthly payment is $495.03, total interest is $4,701.80, and you repay $29,701.80 in all. Add $100 extra per month and the loan ends 11 months sooner, saving $939.00 of interest — money that stays in your pocket instead of the lender's.
How to use this calculator
- Enter the amount you plan to borrow.
- Enter the annual interest rate from the loan offer.
- Enter the term in years.
- Optionally add an extra monthly payment to see the interest you would save.
- Compare total interest — not just the monthly payment — before choosing between offers.
Watch out for fees
This calculator covers interest only. Origination fees, closing costs and add-on insurance raise the true cost of a loan without changing its quoted rate. To fold fees into one honest annual number, run the same loan through the APR Calculator. For home loans with taxes and insurance included, use the Mortgage Calculator.