Loan Interest Calculator

Calculate the total interest paid on an amortized loan using our loan interest calculator below.


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Total Loan Interest:


Monthly Payment:
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This calculation is based on widely-accepted formulas for educational purposes only - this is not a recommendation for how to handle your finances, and it is not an offer to lend. Consult with a financial professional before making financial decisions.
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How to Calculate Loan Interest

A loan interest payment is the portion of the monthly payment that pays the financial lender for using their money. The other portion, the principal payment, is what actually lowers the balance of the loan.

To find the total interest over the life of a loan, you calculate the interest payment for each month and then add up all the interest payments. We will demonstrate this calculation with an example below.

The interest payment varies for each loan payment, which is why amortizing loans is done by using an amortization schedule to calculate the monthly payment, principal, and interest over the life of the loan.

To calculate the total interest paid on a loan, you’ll need to follow four basic steps.

Step One: Find the Periodic Interest Rate

The first step is to calculate the periodic interest rate. Financial lenders will generally give you an annual interest rate, but loans aren’t paid back annually. They are paid back on a monthly basis. So we first need to calculate a monthly interest rate.

r = i ÷ 12

r = periodic interest rate
i = annual interest rate

Thus, the monthly periodic rate is equal to the annual rate divided by 12.

For example, let’s calculate the periodic interest rate for a 6% annual rate.

r = 0.06 ÷ 12 = 0.005

So, the periodic rate is equal to 0.5%.

Step Two: Calculate the Period Interest Payment

After calculating the periodic interest rate, we can now calculate the interest payment for that period.

Loan Interest Formula

The interest payment is calculated by multiplying the remaining principal balance by the periodic interest rate that was calculated in the previous step. The loan interest formula is:

INT = P × r

INT = interest for payment
P = remaining principal balance
r = periodic interest rate

The interest payment is equal to the remaining principal balance multiplied by the periodic rate.

Continuing the example above, the first interest payment would be found by multiplying the principal balance of $15,000 by 0.5%.

INT = $15,000 × 0.005
INT = $75

So, the interest payment for this period is $75.

Step Three: Calculate the New Principal Balance

The third step is to calculate the remaining principal balance after the payment. You can find this by taking the previous principal balance and subtracting the portion of the monthly payment that goes to principal.

remaining principal balance = previous principal balance – principal paid

Calculate the principal payment by subtracting the interest portion of the payment from the total monthly payment.

monthly principal = total monthly payment – monthly interest

For example, let’s calculate the remaining principal after the first monthly payment of $197.12 for a $15,000 loan amount at an 6% interest rate. You can calculate this payment using our loan payment calculator.

Recall that the periodic rate was 0.5% and the first interest payment was $75.

For the first month, the principal payment is then:

$197.12 – $75 interest = 122.12 principal

Therefore, the new principal balance will be:

$15,000 – $122.12 = $14,877.88

Step Four: Repeat for Each Loan Payment

To calculate the interest for each monthly payment, repeat steps 2 & 3 until the loan is paid in full.

The interest payment is then subtracted from the total monthly payment, so we know what goes to pay down the principal balance. The principal payment is then subtracted from the remaining principal to calculate the new principal balance.

To calculate the total interest, add the interest paid in each payment over the life of the loan.

Let’s take all of these steps and apply it to the 4th payment. In this example, we are using the same variables as the previous examples.

Step 1:
The periodic interest rate remains fixed and is 0.5%.

Step 2:
The interest payment is calculated by taking the remaining balance of $14,631.81 after the previous payment and multiplying by the periodic interest rate of 0.5%.

$14,631.81 × 0.5% = $73.16

Step 3:
To calculate the new principal balance, start by determining the principal payment.

The monthly payment is $197.12 and the interest payment we calculated in the previous step is $73.16. Therefore, the principal payment is:

$197.12 – $73.16 = $123.96

Then we can take this principal payment and subtract it from the previous remaining balance to get the new remaining balance.

$14,631.81 – $123.96 = $14,507.85

So, the remaining balance after this payment is $14,507.85. These steps can also be repeated for any month and the correct results will be given.

Types of Loan Interest

The main difference between loan interest is whether the loan has a fixed interest rate or a variable interest rate.

The fixed rate on a loan is higher than the variable rate because fixed rate interest will not change during the life of the loan.

A financial lender offers the variable rate at a discount initially because the rate may increase in the future. A variable interest rate may often remain fixed for a few years and then increase each year thereafter.

The calculator above assumes a fixed interest rate. This is generally the method used to calculate the interest paid on student loans and auto loans.

Frequently Asked Questions

What is an amortization schedule?

An amortization schedule is a schedule or table that details each payment on an amortizing loan, such as a mortgage, auto loan, or student loan. Each period the payment remains the same, but the schedule outlines what portion goes towards interest and principal.

Over time, the portion of the payment that goes towards interest will decrease and the portion that goes towards principal will increase.

Does the loan interest calculator tell me exactly what I will be paying for a loan each month?

The loan interest calculator calculates the interest and principal payment on a loan, however, loans can have other fees attached that are not calculated with the loan interest calculator.

Or, with a mortgage, for example, taxes and insurance might be included in the monthly payment, but that is not part of the loan interest calculator.