Loan Calculator

How a loan payment is built

Every installment loan works the same way with different numbers on the dial. You borrow a lump sum, the lender charges interest on the balance you still owe each month, and your payment covers that interest first and then reduces the balance. Because the balance shrinks, the interest part of each payment shrinks with it while the principal part grows.

The payment comes from one formula: M = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the amount borrowed, r is the annual rate divided by 12, and n is the number of monthly payments.

On the default example, $15,000 at 11.99 percent for 60 months, the monthly rate is 0.0099917 and the payment is $333.59. The first payment splits into $149.88 of interest and $183.72 of principal; the last one carries $3.30 of interest.

Add up the schedule and the price of the loan appears: 60 x 333.59 = 20,015.46 dollars of payments, of which 5,015.46 is interest. That is 25.1 percent of everything you hand back.

The first 12 payments contain $1,673.22 of interest. Later payments contain less, which is why an extra payment early in the loan does more work than the same payment at the end.

Comparing two offers: the payment is not the price

Most people compare offers by the monthly payment, which is the wrong number. A lender who quotes a smaller payment over a longer term looks cheaper today and costs more in the end. Compare the total of payments, and watch the real APR once every fee is included.

The calculator holds two offers at once. Offer A is the default: $15,000 at 11.99 percent for 60 months with a 5 percent origination fee. Offer B is $15,000 at 9.99 percent for 48 months with a 3 percent fee.

Offer A costs $333.59 a month and $20,015.46 in total. Offer B costs $380.37 a month and $18,257.60 in total, which is $1,757.85 less over the life of the loan. The lower rate wins on the total even though it carries the larger payment.

Now the fees. The 5 percent fee on Offer A takes $750 off the $15,000 before it reaches you, so you start with $14,250.00, and the rate on the cash you received is 14.27 percent. The 3 percent fee on Offer B lifts its 9.99 percent to 11.61 percent.

The Consumer Financial Protection Bureau explains that personal loan terms depend on your credit score and reports, your income, your other debts, and the size and length of the loan, and its overview of personal installment loans lists the same factors.

What an origination fee does to your rate

An origination fee is charged for making the loan and usually comes out of the amount you receive, so you borrow $15,000 and start with less. On a loan of a few years, a fee that looks small becomes a large slice of the money you were trying to get.

Add fees of 0, 2, 4, 6 and 8 percent to the default loan. The payment stays at $333.59 because the lender still works it out on $15,000. The true rate climbs: 11.99 percent with no fee, 12.88 percent at 2 percent, 13.80 percent at 4 percent, 14.75 percent at 6 percent, and 15.73 percent at 8 percent.

An 8 percent fee adds $1,200 to the cost of borrowing $15,000. When two lenders quote similar rates, the smaller fee is the better deal; when rates and fees pull in different directions, the total cost decides it. Watch for fees under other names, such as a processing fee or a late fee on the first payment. The Federal Trade Commission keeps a consumer guide to loans that is worth reading before you sign.

How much you can borrow for a payment you can afford

The other direction of the same math is the one most borrowers need: you know the payment and want to know what it buys. Solved for the loan amount, the formula is P = M x [1 - (1+r)^-n] / r, with M as the payment and r as the monthly rate.

At 11.99 percent over 60 months a $400 payment supports $17,986.10 of borrowing. At 9.99 percent over 48 months the same $400 supports $15,774.25, so the same budget buys less when the term is shorter, even at a lower rate.

Use the result as a ceiling, not a target. Borrowing to the edge of your budget leaves nothing for a repair or a medical bill, and the second loan taken on to cover the first is how people end up paying card rates on top of a loan. A common rule keeps all monthly debt payments, the new loan included, under 36 percent of gross income.

Term length: the cheapest loan is not the lowest payment

Here is the same $15,000 at 11.99 percent across six terms. The payment falls as the term stretches and the interest column moves the other way.

Going from 24 months to 84 months drops the payment from $706.03 to $264.71, a gap of $441.32 a month that is easier to carry, and pushes total interest from $1,944.77 to $7,235.71, an extra $5,290.94 for the same $15,000.

The trade is worth taking when the shorter term is a stretch and worth refusing when it is not. A middle path is to take the longer term and add extra principal, which keeps the smaller payment and cuts the interest at the same time.

An extra $100 a month turns 60 payments into 43, saves $1,518.03 of interest, and leaves a smaller final payment. Paying principal early removes future interest instead of rescheduling the loan.

What lenders look at before they approve you

The rate you are offered is not a fixed price for the same loan to everyone. It is priced off your risk: credit score, income, existing debt payments, and the size and length of the loan. The CFPB lists the same factors and adds that the rates your state allows set the floor.

Three habits help before you apply. Know your credit score and read your reports, because the score moves the rate more than anything else. Work out your debt to income ratio and keep it under 36 percent. Ask every lender for the APR and the dollar amount of each fee in writing.

Rate shopping in a short window is normal, but the credit checks are not all the same. A check that follows a completed application is a hard inquiry, while a quote that never becomes an application is usually a soft one, and the CFPB explains how hard and soft inquiries differ. If the loan is for debt consolidation, clear the old balances first and do not put new charges on the cards you are paying off.

Personal loan, credit card, or a loan against something you own

The type of loan sets the price. A personal installment loan is a closed end loan: the money arrives in one lump sum and you repay fixed installments over a set period, the structure the CFPB describes in its guide to personal installment loans. That suits a known expense, such as a repair bill or a set of card balances you want to clear on a schedule.

A credit card is an open line you can keep charging on, which helps when the amount is uncertain and hurts when it is not. A loan secured by a car or a house carries a lower rate because the lender has something to take if payments stop.

Those APR bands are market ranges, not quotes, and where you land inside a band depends on your credit. The FTC warns about companies that promise a lower payment for a fee paid up front, and its resource on credit, loans and debt is worth reading before money goes to anyone you found online.

What this calculator does not cover

This tool handles the loan math: the payment, the total interest, the effect of a fee, the effect of extra principal, and how much a set payment can support. A few things sit outside it.

A variable rate loan changes after the fixed period, and this calculator assumes the rate you type holds for every payment. If you are offered one, find the maximum rate in the paperwork and run the numbers again at that rate.

The APR on the paperwork and the rate on this page can also differ: a lender may quote the interest rate and disclose the APR separately, and the disclosed figure is the one to compare. Read both lines on the offer, and ask which one includes the origination fee.

The calculator does not price insurance, taxes, or products a lender sells alongside the loan, and it assumes every installment arrives on time. Use the output to compare offers and understand the shape of a loan, then confirm the final figures with the lender before signing.