💰 Loan Payment Calculator
Calculate your monthly loan payments with detailed amortization breakdown
📊 How Loan Payment Calculations Work
This calculator computes your monthly loan payment using the standard amortization formula for fixed-rate loans. The formula ensures that each payment covers both interest and principal, with the proportion shifting over time.
The formula used to calculate your monthly payment is:
Where:
- M = Monthly payment
- P = Principal loan amount
- r = Monthly interest rate (annual rate divided by 12)
- n = Total number of payments (loan term in years multiplied by 12)
In the early years of your loan, a larger portion of each payment goes toward interest rather than principal. As you continue to make payments, this ratio gradually shifts until the final payments are almost entirely principal.
For example, on a 30-year mortgage, in the first year, about 70-80% of your payment goes toward interest. By the final year, this reverses, with most of your payment going toward principal.
This calculator helps you understand the true cost of borrowing by showing both your monthly payment and the total interest you'll pay over the life of the loan.
The monthly payment is calculated using the standard amortization formula: M = P × [r(1 + r)^n] / [(1 + r)^n - 1], where P is the loan principal, r is the monthly interest rate, and n is the number of payments. This formula ensures that each payment covers both interest and principal, with the proportion shifting over time. The calculation assumes a fixed interest rate and equal monthly payments throughout the loan term.
Principal is the original loan amount you borrowed. Interest is the cost of borrowing that money, calculated as a percentage of the remaining principal. In the early years of a loan, most of your payment goes toward interest. As you pay down the principal, the interest portion decreases and more of your payment goes toward principal. For example, on a $300,000 mortgage at 4%, your first payment might include $1,000 in interest and only $432 in principal, but by year 15, this might shift to $600 in interest and $832 in principal.
A longer loan term results in lower monthly payments but higher total interest costs over the life of the loan. A shorter term means higher monthly payments but less interest paid overall. For example, a $300,000 loan at 4% would have a monthly payment of $1,432 for 30 years (total interest: $215,609) versus $2,110 for 15 years (total interest: $79,767). The 15-year loan saves $135,842 in interest but requires $678 more per month. Choosing the right term depends on your budget and financial goals.
Amortization is the process of gradually paying off a loan through regular payments that cover both principal and interest. In the early years, most of each payment goes toward interest, with a smaller portion reducing the principal. Over time, this ratio shifts so that more of each payment goes toward principal. An amortization schedule shows this breakdown for each payment throughout the life of the loan, helping you understand how your debt decreases over time and how much interest you're paying at each stage.
Yes, making extra payments can significantly reduce your loan term and total interest paid. Even small additional payments applied directly to principal can shave years off your loan and save thousands in interest. For example, adding $100 to your monthly mortgage payment on a $300,000 loan at 4% could reduce a 30-year term to about 25 years and save over $27,000 in interest. Before making extra payments, check with your lender about any prepayment penalties and ensure additional payments are applied to principal rather than future payments.