How the monthly payment is worked out
You enter a loan amount, an annual interest rate and a term in years. The calculator converts the term to months and the rate to a monthly rate, then uses the standard fixed-payment amortization formula:
payment = P × r × (1 + r)n / ((1 + r)n − 1)
Here P is the amount borrowed, r is the annual rate ÷ 12 ÷ 100 and n is years × 12. At a 0% rate it simply divides the amount by the number of months. Total cost is the payment times n, and total interest is total cost minus the amount borrowed. The page's own default is 25,000 at 7.5% over 5 years. Amounts are shown rounded to whole numbers.
Worked example
For 25,000 at 7.5% over 5 years, r = 0.00625 and n = 60. The payment is 500.95 a month, giving a total cost of 30,056.92 and total interest of 5,056.92. In the first month, interest on the full balance is 25,000 × 0.00625 = 156.25, so 344.70 of that first payment reduces the debt. The share going to principal rises every month as the balance shrinks.
What changes the cost
| Loan of 25,000 | Monthly payment | Total interest |
|---|---|---|
| 7.5%, 3 years | 777.66 | 2,995.60 |
| 7.5%, 5 years | 500.95 | 5,056.92 |
| 7.5%, 7 years | 383.46 | 7,210.38 |
| 5.5%, 5 years | 477.53 | 3,651.74 |
| 9.5%, 5 years | 525.05 | 6,502.79 |
Stretching from 3 to 7 years drops the payment by about 394 a month but more than doubles the interest. Rate matters less than term here: moving from 5.5% to 9.5% on a 5-year loan adds 47.52 a month.
Limits and things the result leaves out
- Interest rate versus APR. The rate field is the nominal interest rate only. Origination fees, insurance and other charges are not included, so the lender's APR can be higher than the rate you type.
- Fixed rate, equal payments. The formula assumes the rate never changes and each payment is the same. Variable-rate loans, interest-only periods and balloon payments will not match.
- Whole-month terms. The term field accepts decimals, so 2.5 means 30 months. There is no field for months directly. A term of 0 or less, a rate below 0 or an amount of 0 shows a message instead of a result.
- No extra payments. To model paying more each month, use the mortgage calculator, which has an extra-payment option and adds tax and insurance for a home loan.
This tool and the EMI calculator share the same calculation; only the default values and labels differ. The guide on how EMI is calculated walks through where the formula comes from.