The standard loan formula
Most personal, car and student loans are amortizing: a fixed monthly payment covers that month's interest plus a slice of principal, and the principal share grows over time until the balance reaches zero. The payment comes from the standard annuity formula.
Payment = P × i ÷ (1 − (1 + i)^−n), where i is the monthly rate and n the number of months
A $10,000 loan at 10% over 36 months costs about $323 a month and $1,616 in interest. Stretching it to 60 months lowers the payment to about $212 but raises interest to roughly $2,750.
Common questions
How is a loan payment calculated?
With the amortization formula shown above, using the monthly rate (APR ÷ 12) and the number of payments.
What is the difference between APR and interest rate?
APR includes certain fees as well as interest, so it is the better number for comparing loans.
Does a shorter term save money?
Yes. Payments are higher, but total interest is lower.
This calculator gives estimates for planning. Real returns, rates and prices change, so treat the result as a guide rather than a promise. Read how we build and check our calculators.