Money calculations
How to calculate a loan payment
A standard amortized loan uses equal scheduled payments. Each payment covers interest on the outstanding balance and reduces some principal.
Open the loan calculatorPayment = P × [r(1 + r)n] ÷ [(1 + r)n − 1]
P is principal, r is the periodic rate, and n is the number of payments.
Calculate a monthly payment
For a $20,000 loan at 6% annual interest over 4 years with monthly payments:
- Monthly rate: 0.06 ÷ 12 = 0.005.
- Number of payments: 4 × 12 = 48.
- Insert P = 20,000, r = 0.005 and n = 48 in the formula.
- The estimated payment is $469.70 per month.
| Measure | Approximate result |
|---|---|
| Monthly payment | $469.70 |
| Total of 48 payments | $22,545.60 |
| Total interest | $2,545.60 |
The exact total can differ by a few cents because lenders round payments and adjust the final payment.
What the payment does not always include
The principal-and-interest formula excludes charges that may be part of a real monthly bill, such as origination fees, insurance, property taxes, service fees or optional products. APR can include certain finance charges and is not always interchangeable with the note interest rate in a payment formula.
Variable-rate loans, interest-only periods, balloon payments and irregular payment schedules require different assumptions. Confirm the loan's compounding and payment frequency.
Why term matters
A longer term usually lowers each scheduled payment but keeps the balance outstanding longer, which can increase total interest. Compare both the payment and the total cost. An extra principal payment may reduce future interest, but check how the lender applies it and whether any penalty exists.
For a zero-interest loan, the special case is simple: payment = principal ÷ number of payments.
Estimate with ToolPixels
The free Loan Calculator estimates payment, total paid and interest from the principal, annual rate and term you supply. Results are informational estimates, not quotes or financial advice.